Arizona Uniform Commerical Code

	Arizona Revised Statutes Title 47 Updated with laws effective August 9, 2001


*A publication of the Arizona Secretary of State's Office, Public Services Division*

Chapter 1. General Provisions

ARTICLE 1. SHORT TITLE, CONSTRUCTION, APPLICATION, AND SUBJECT MATTER OF THE TITLE

ARTICLE 2. GENERAL DEFINITIONS AND PRINCIPLES OF INTERPRETATION

ARTICLE 1. SHORT TITLE, CONSTRUCTION, APPLICATION, AND SUBJECT MATTER OF THE TITLE

§ 47-1101. Short title

§ 47-1102. Purposes; rules of construction; variation by agreement

A. This title shall be liberally construed and applied to promote its underlying purposes and policies.

1. To simplify, clarify and modernize the law governing commercial transactions.

2. To permit the continued expansion of commercial practices through custom, usage and agreement of the parties.

C. The effect of provisions of this title may be varied by agreement, except as otherwise provided in this title and except that the obligations of good faith, diligence, reasonableness and care prescribed by this title may not be disclaimed by agreement but the parties may by agreement determine the standards by which the performance of such obligations is to be measured if such standards are not manifestly unreasonable.

D. The presence in certain provisions of this title of the words "unless otherwise agreed" or words of similar import does not imply that the effect of other provisions may not be varied by agreement under subsection C.

1. Words in the singular number include the plural, and in the plural include the singular.

2. Words of the masculine gender include the feminine and the neuter, and when the sense so indicates words of the neuter gender may refer to any gender.

§ 47-1103. Supplementary general principles of law applicable

Unless displayed by the particular provisions of this title, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions.

§ 47-1104. Construction against implicit repeal

This title being a general title intended as a unified coverage of its subject matter, no part of it shall be deemed to be impliedly repealed by subsequent legislation if such construction can reasonably be avoided.

§ 47-1105. Territorial application of the title; parties' power to choose applicable law

A. 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 title applies to transactions bearing an appropriate relation to this state.

B. Where one of the following provisions of this title 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:

3. Applicability of the chapter on bank deposits and collections. Section 47-4102.

8. Law governing perfection, the effect of perfection or nonperfection and the priority of security interests and agricultural liens. Sections 47-9301 through 47-9307.

§ 47-1106. Remedies to be liberally administered

A. The remedies provided by this title shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special nor penal damages may be had except as specifically provided in this title or by other rule of law.

B. Any right or obligation declared by this title is enforceable by action unless the provision declaring it specifies a different and limited effect.

§ 47-1107. Waiver or renunciation of claim or right after breach

Any claim or right arising out of an alleged breach can be discharged in whole or in part without consideration by a written waiver or renunciation signed and delivered by the aggrieved party.

§ 47-1108. Section captions

ARTICLE 2. GENERAL DEFINITIONS AND PRINCIPLES OF INTERPRETATION

§ 47-1201. General definitions

Subject to additional definitions contained in the subsequent chapters of this title which are applicable to specific chapters, and unless the context otherwise requires, in this title:

1. "Action" in the sense of a judicial proceeding includes recoupment, counterclaim, set-off, suit in equity and any other proceedings in which rights are determined.

3. "Agreement" means the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance as provided in sections 47-1205 and 47-2208. Whether an agreement has legal consequences is determined by the provisions of this title, if applicable; otherwise by the law of contracts, (section 47-1103). (Compare "contract".)

5. "Bearer" means the person in possession of an instrument, document of title, or certificated security payable to bearer or indorsed in blank.

6. "Bill of lading" means a document evidencing the receipt of goods for shipment issued by a person engaged in the business of transporting or forwarding goods, and includes an airbill. "Airbill" means a document serving for air transportation as a bill of lading does for marine or rail transportation, and includes an air consignment note or air waybill.

8. "Burden of establishing" a fact means the burden of persuading the triers of fact that the existence of the fact is more probable than its nonexistence.

9. "Buyer in ordinary course of business" means a person that buys goods in good faith without knowledge that the sale violates the rights of another person in the goods and in the ordinary course from a person, other than a pawnbroker, in the business of selling goods of that kind. A person buys goods in the ordinary course if the sale to the person comports with the usual or customary practices in the kind of business in which the seller is engaged or with the seller's own usual or customary practices. A person that sells oil, gas or other minerals at the wellhead or minehead is a person in the business of selling goods of that kind. A buyer in ordinary course of business may buy for cash, by exchange of other property or on secured or unsecured credit and may acquire goods or documents of title under a preexisting contract for sale. Only a buyer that takes possession of the goods or has a right to recover the goods from the seller under chapter 2 of this title may be a buyer in ordinary course of business. A person that acquires goods in a transfer in bulk or a security for or in total or partial satisfaction of a money debt is not a buyer in ordinary course of business.

10. "Conspicuous": A term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals (as: NONNEGOTIABLE BILL OF LADING) is conspicuous. Language in the body of a form is "conspicuous" if it is in larger or other contrasting type or color. But in a telegram any stated term is "conspicuous". Whether a term or clause is "conspicuous" or not is for decision by the court.

11. "Contract" means the total legal obligation which results from the parties' agreement as affected by this title and any other applicable rules of law. (Compare "agreement".)

12. "Creditor" includes a general creditor, a secured creditor, a lien creditor and any representative of creditors, including an assignee for the benefit of creditors, a trustee in bankruptcy, a receiver in equity and an executor or administrator of an insolvent debtor's or assignor's estate.

13. "Defendant" includes a person in the position of defendant in a cross-action or counterclaim.

14. "Delivery" with respect to instruments, documents of title, chattel paper or certificated securities means voluntary transfer of possession.

15. "Document of title" includes bill of lading, dock warrant, dock receipt, warehouse receipt or order for the delivery of goods, and also any other document which in the regular course of business or financing is treated as adequately evidencing that the person in possession of it is entitled to receive, hold and dispose of the document and the goods it covers. To be a document of title a document must purport to be issued by or addressed to a bailee and purport to cover goods in the bailee's possession which are either identified or are fungible portions of an identified mass.

17. "Fungible" with respect to goods or securities means goods or securities of which any unit is, by nature or usage of trade, the equivalent of any other like unit. Goods which are not fungible shall be deemed fungible for the purposes of this title to the extent that under a particular agreement or document unlike units are treated as equivalents.

(a) Negotiable instrument means the person in possession if the instrument is payable to bearer or, in the case of an instrument payable to an identified person, if the identified person is in possession.

(b) Document of title means the person in possession if the goods are deliverable to bearer or to the order of the person in possession.

21. To "honor" is to pay or to accept and pay, or where a credit so engages to purchase or discount a draft complying with the terms of the credit.

22. "Insolvency proceedings" includes any assignment for the benefit of creditors or other proceedings intended to liquidate or rehabilitate the estate of the person involved.

23. A person is "insolvent" who either has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due or is insolvent within the meaning of the federal bankruptcy law.

24. "Money" means a medium of exchange authorized or adopted by a domestic or foreign government and includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more nations.

(c) From all the facts and circumstances known to him at the time in question he has reason to know that it exists. A person "knows" or has "knowledge" of a fact when he has actual knowledge of it. "Discover" or "learn" or a word or phrase of similar import refers to knowledge rather than to reason to know. The time and circumstances under which a notice or notification may cease to be effective are not determined by this title.

26. A person "notifies" or "gives" a notice or notification to another by taking such steps as may be reasonably required to inform the other in ordinary course whether or not such other actually comes to know of it. A person "receives" a notice or notification when:

(b) It is duly delivered at the place of business through which the contract was made or at any other place held out by him as the place for receipt of such communications.

27. Notice, knowledge or a notice or notification received by an organization is effective for a particular transaction from the time when it is brought to the attention of the individual conducting that transaction, and in any event from the time when it would have been brought to his attention if the organization had exercised due diligence. An organization exercises due diligence if it maintains reasonable routines for communicating significant information to the person conducting the transaction and there is reasonable compliance with the routines. Due diligence does not require an individual acting for the organization to communicate information unless such communication is part of his regular duties or unless he has reason to know of the transaction and that the transaction would be materially affected by the information.

28. "Organization" includes a corporation, government or governmental subdivision or agency, business trust, estate, trust, partnership or association, two or more persons having a joint or common interest, or any other legal or commercial entity.

29. "Party", as distinct from "third party", means a person who has engaged in a transaction or made an agreement within this title.

31. "Presumption" or "presumed" means that the trier of fact must find the existence of the fact presumed unless and until evidence is introduced which would support a finding of its nonexistence.

32. "Purchase" includes taking by sale, discount, negotiation, mortgage, pledge, lien, security interest, issue or re-issue, gift or any other voluntary transaction creating an interest in property.

34. "Remedy" means any remedial right to which an aggrieved party is entitled with or without resort to a tribunal.

35. "Representative" includes an agent, an officer of a corporation or association, and a trustee, executor or administrator of an estate, or any other person empowered to act for another.

37. "Security interest" means an interest in personal property or fixtures which secures payment or performance of an obligation. The term also includes any interest of a consignor and a buyer of accounts, chattel paper, a payment intangible or a promissory note in a transaction that is subject to chapter 9 of this title. The special property interest of a buyer of goods on identification of those goods to a contract for sale under section 47-2401 is not a "security interest", but a buyer may also acquire a "security interest" by complying with chapter 9 of this title. Except as otherwise provided in section 47-2505, the right of a seller or lessor of goods under chapter 2 or 2A of this title to retain or acquire possession of the goods is not a "security interest", but a seller or lessor may also acquire a "security interest" by complying with chapter 9 of this title. The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer (section 47-2401) is limited in effect to a reservation of a "security interest". For purposes of this paragraph, the following apply:

(a) Whether a transaction creates a lease or security interest is determined by the facts of each case. However, a transaction creates a security interest if the consideration the lessee is to pay the lessor for the right to possession and use of the goods is an obligation for the term of the lease not subject to termination by the lessee, and:

(i) The original term of the lease is equal to or greater than the remaining economic life of the goods;

(ii) The lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become the owner of the goods;

(iii) The lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement; or

(iv) The lessee has an option to become the owner of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement.

(b) A transaction does not create a security interest merely because it provides that:

(i) The present value of the consideration the lessee is obligated to pay the lessor for the right to possession and use of the goods is substantially equal to or is greater than the fair market value of the goods at the time the lease is entered into;

(ii) The lessee assumes risk of loss of the goods, or agrees to pay taxes, insurance, filing, recording or registration fees, or service or maintenance costs with respect to the goods;

(iii) The lessee has an option to renew the lease or to become the owner of the goods;

(iv) The lessee has an option to renew the lease for a fixed rent that is equal to or greater than the reasonably predictable fair market rent for the use of the goods for the term of the renewal at the time the option is to be performed; or

(v) The lessee has an option to become the owner of the goods for a fixed price that is equal to or greater than the reasonably predictable fair market value of the goods at the time the option is to be performed.

(c) Additional consideration is not nominal if when the option to renew the lease is granted to the lessee the rent is stated to be the fair market rent for the use of the goods for the term of the renewal determined at the time the option is to be performed, or when the option to become the owner of the goods is granted to the lessee the price is stated to be the fair market value of the goods determined at the time the option is to be performed.

(d) Additional consideration is nominal if it is less than the lessee's reasonably predictable cost of performing under the lease agreement if the option is not exercised.

(e) "Reasonably predictable" and "remaining economic life of the goods" are to be determined with reference to the facts and circumstances at the time the transaction is entered into.

(f) "Present value" means the amount as of a date certain of one or more sums payable in the future and discounted to the date certain. The discount is determined by the interest rate specified by the parties if the rate is not manifestly unreasonable at the time the transaction is entered into. Otherwise, the discount is determined by a commercially reasonable rate that takes into account the facts and circumstances of each case at the time the transaction was entered into.

38. "Send" in connection with any writing or notice means to deposit in the mail or deliver for transmission by any other usual means of communication with postage or cost of transmission provided for and properly addressed and in the case of an instrument to an address specified thereon or otherwise agreed, or if there be none to any address reasonable under the circumstances. The receipt of any writing or notice within the time at which it would have arrived if properly sent has the effect of a proper sending.

39. "Signed" includes any symbol executed or adopted by a party with present intention to authenticate a writing.

41. "Telegram" includes a message transmitted by radio, teletype, cable, any mechanical method of transmission, or the like.

42. "Term" means that portion of an agreement which relates to a particular matter.

43. "Unauthorized" signature means one made without actual, implied or apparent authority and includes a forg ery.

44. "Value". Except as otherwise provided with respect to negotiable instruments and bank collections (sections 47-3303, 47-4210 and 47-4211) a person gives "value" for rights if he acquires them:

(a) In return for a binding commitment to extend credit or for the extension of immediately available credit whether or not drawn upon and whether or not a charge-back is provided for in the event of difficulties in collection; or

(b) As security for or in total or partial satisfaction of a preexisting claim; or

(d) Generally, in return for any consideration sufficient to support a simple contract.

45. "Warehouse receipt" means a receipt issued by a person engaged in the business of storing goods for hire.

46. "Written" or "writing" includes printing, typewriting or any other intentional reduction to tangible form.

§ 47-1202. Prima facie evidence by third party documents

A document in due form purporting to be a bill of lading, policy or certificate of insurance, official weigher's or inspector's certificate, consular invoice, or any other document authorized or required by the contract to be issued by a third party shall be prima facie evidence of its own authenticity and genuineness and of the facts stated in the document by the third party.

§ 47-1203. Obligation of good faith

Every contract or duty within this title imposes an obligation of good faith in its performance or enforcement.

§ 47-1204. Time; reasonable time; "seasonably"

A. Whenever this title requires any action to be taken within a reasonable time, any time which is not manifestly unreasonable may be fixed by agreement.

B. What is a reasonable time for taking any action depends on the nature, purpose and circumstances of such action.

C. An action is taken "seasonably" when it is taken at or within the time agreed or if no time is agreed at or within a reasonable time.

§ 47-1205. Course of dealing and usage of trade

A. A course of dealing is a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.

B. A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage are to be proved as facts. If it is established that such a usage is embodied in a written trade code or similar writing the interpretation of the writing is for the court.

C. A course of dealing between parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify terms of an agreement.

D. The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade.

E. An applicable usage of trade in the place where any part of performance is to occur shall be used in interpreting the agreement as to that part of the performance.

F. Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise to the latter.

§ 47-1206. Statute of frauds for kinds of personal property not otherwise covered

A. Except in the cases described in subsection B of this section a contract for the sale of personal property is not enforceable by way of action or defense beyond five thousand dollars 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 authorized agent.

B. Subsection A of this section does not apply to contracts for the sale of goods (section 47-2201) nor of securities (section 47-8113) nor to security agreements (section 47-9203).

§ 47-1207. Performance or acceptance under reservation of rights

A. A party who with explicit reservation of rights performs or promises performance or assents to performance in a manner demanded or offered by the other party does not thereby prejudice the rights reserved. Such words as "without prejudice", "under protest" or the like are sufficient.

§ 47-1208. Option to accelerate at will

A term providing that one party or his successor in interest may accelerate payment or performance or require collateral or additional collateral "at will" or "when he deems himself insecure" or in words of similar import shall be construed to mean that he shall have power to do so only if he in good faith believes that the prospect of payment or performance is impaired. The burden of establishing lack of good faith is on the party against whom the power has been exercised.

§ 47-1209. Subordinated obligations

An obligation may be issued as subordinated to payment of another obligation of the person obligated, or a creditor may subordinate his right to payment of an obligation by agreement with either the person obligated or another creditor of the person obligated. Such a subordination does not create a security interest as against either the common debtor or a subordinated creditor. This section shall be construed as declaring the law as it existed prior to the enactment of this section and not as modifying it.

CHAPTER 2. SALES

ARTICLE 1. SHORT TITLE, GENERAL CONSTRUCTION AND SUBJECT MATTER

ARTICLE 2. FORM, FORMATION AND READJUSTMENT OF CONTRACT

ARTICLE 3. GENERAL OBLIGATION AND CONSTRUCTION OF CONTRACT

ARTICLE 4 - TITLE, CREDITORS AND GOOD FAITH PURCHASES

ARTICLE 5. PERFORMANCE

ARTICLE 6 - BREACH, REPUDIATION AND EXCUSE

ARTICLE 7 - REMEDIES

ARTICLE 1. SHORT TITLE, GENERAL CONSTRUCTION AND SUBJECT MATTER

§ 47-2101. Short title

This chapter shall be known and may be cited as the uniform commercial code - - sales.

§ 47-2102. Scope; certain security and other transactions excluded from this chapter

Unless the context otherwise requires, this chapter applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this chapter impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.

§ 47-2103. Definitions and index of definitions

2. "Good faith" in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.

B. Other definitions applying to this chapter, and the sections in which they appear, are:

D. In addition chapter 1 of this title contains general definitions and principles of construction and interpretation applicable throughout this chapter.

§ 47-2104. Definitions: "merchant"; "between merchants"; "financing agency"

A. "Merchant" means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.

B. "Financing agency" means a bank, finance company or other person who in the ordinary course of business makes advances against goods or documents of title or who by arrangement with either the seller or the buyer intervenes in ordinary course to make or collect payment due or claimed under the contract for sale, as by purchasing or paying the seller's draft or making advances against it or by merely taking it for collection whether or not documents of title accompany the draft. "Financing agency" includes also a bank or other person who similarly intervenes between persons who are in the position of seller and buyer in respect to the goods (section 47-2707).

C. "Between merchants" means in any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants.

§ 47-2105. Definitions: transferability; "goods"; "future" goods; "lot"; "commercial unit"

A. "Goods" means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (chapter 8 of this title) and things in action. "Goods" also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (section 47-2107).

B. Goods must be both existing and identified before any interest in them can pass. Goods which are not both existing and identified are "future" goods. A purported present sale of future goods or of any interest therein operates as a contract to sell.

D. An undivided share in an identified bulk of fungible goods is sufficiently identified to be sold although the quantity of the bulk is not determined. Any agreed proportion of such a bulk or any quantity thereof agreed upon by number, weight or other measure may to the extent of the seller's interest in the bulk be sold to the buyer who then becomes an owner in common.

E. "Lot" means a parcel or a single article which is the subject matter of a separate sale or delivery, whether or not it is sufficient to perform the contract.

F. "Commercial unit" means such a unit of goods as by commercial usage is a single whole for purposes of sale and division of which materially impairs its character or value on the market or in use. A commercial unit may be a single article (as a machine) or a set of articles (as a suite of furniture or an assortment of sizes) or a quantity (as a bale, gross, or carload) or any other unit treated in use or in the relevant market as a single whole.

§ 47-2106. Definitions: "contract"; "agreement"; "contract for sale"; "sale"; "present sale"; "conforming" to contract; "termination"; "cancellation"

A. In this chapter, unless the context otherwise requires, "contract" and "agreement" are limited to those relating to the present or future sale of goods. "Contract for sale" includes both a present sale of goods and a contract to sell goods at a future time. A "sale" consists in the passing of title from the seller to the buyer for a price (section 47-2401). A "present sale" means a sale which is accomplished by the making of the contract.

B. Goods or conduct including any part of a performance are "conforming" or conform to the contract when they are in accordance with the obligations under the contract.

C. "Termination" occurs when either party pursuant to a power created by agreement or law puts an end to the contract otherwise than for its breach. On "termination" all obligations which are still executory on both sides are discharged but any right based on prior breach or performance survives.

D. "Cancellation" occurs when either party puts an end to the contract for breach by the other and its effect is the same as that of "termination" except that the cancelling party also retains any remedy for breach of the whole contract or any unperformed balance.

§ 47-2107. Goods to be severed from realty; recording

A. A contract for the sale of minerals or the like (including oil and gas) or a structure or its materials to be removed from realty is a contract for the sale of goods within this chapter if they are to be severed by the seller but until severance a purported present sale thereof which is not effective as a transfer of an interest in land is effective only as a contract to sell.

B. A contract for the sale apart from the land of growing crops or other things attached to realty and capable of severance without material harm thereto but not described in subsection A or of timber to be cut is a contract for the sale of goods within this chapter whether the subject matter is to be severed by the buyer or by the seller even though it forms part of the realty at the time of contracting, and the parties can by identification effect a present sale before severance.

C. The provisions of this section are subject to any third party rights provided by the law relating to realty records, and the contract for sale may be executed and recorded as a document transferring an interest in land and shall then constitute notice to third parties of the buyer's rights under the contract for sale.

ARTICLE 2. FORM, FORMATION AND READJUSTMENT OF CONTRACT

§ 47-2201. Formal requirements; statute of frauds

A. Except as otherwise provided in this section, a contract for the sale of goods for the price of five hundred dollars or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this subsection beyond the quantity of goods shown in such writing.

B. Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection A of this section against such party unless written notice of objection to its contents is given within ten days after it is received.

C. A contract which does not satisfy the requirements of subsection A of this section but which is valid in other respects is enforceable:

1. If the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or

2. If the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or

3. With respect to goods for which payment had been made and accepted or which have been received and accepted (section 47-2606).

§ 47-2202. Final written expression: parol or extrinsic evidence

Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented:

1. By course of dealing or usage of trade (section 47-1205) or by course of performance (section 47-2208); and

2. By evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.

§ 47-2203. Seals inoperative

The affixing of a seal to a writing evidencing a contract for sale or an offer to buy or sell goods does not constitute the writing a sealed instrument and the law with respect to sealed instruments does not apply to such a contract or offer.

§ 47-2204. Formation in general

A. A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.

B. An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.

C. Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

§ 47-2205. Firm offers

An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

§ 47-2206. Offer and acceptance in formation of contract

1. An offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances.

2. An order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.

B. Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.

§ 47-2207. Additional terms in acceptance or confirmation

A. A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

B. The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

3. Notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

C. Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this title.

§ 47-2208. Course of performance or practical construction

A. Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement.

B. The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever reasonable as consistent with each other; but when such construction is unreasonable, express terms shall control course of performance and course of performance shall control both course of dealing and usage of trade (section 47-1205).

C. Subject to the provisions of section 47-2209 on modification and waiver, such course of performance shall be relevant to show a waiver or modification of any term inconsistent with such course of performance.

§ 47-2209. Modification, rescission and waiver

A. An agreement modifying a contract within this chapter needs no consideration to be binding.

B. A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.

C. The requirements of the statute of frauds section of this chapter (section 47-2201) must be satisfied if the contract as modified is within its provisions.

D. Although an attempt at modification or rescission does not satisfy the requirements of subsection B or C of this section it can operate as a waiver.

E. A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

§ 47-2210. Delegation of performance; assignment of rights

A. A party may perform his duty through a delegate unless otherwise agreed or unless the other party has a substantial interest in having his original promisor perform or control the acts required by the contract. No delegation of performance relieves the party delegating of any duty to perform or any liability for breach.

B. Unless otherwise agreed all rights of either seller or buyer can be assigned except where the assignment would materially change the duty of the other party, or increase materially the burden or risk imposed on him by his contract, or impair materially his chance of obtaining return performance. A right to damages for breach of the whole contract or a right arising out of the assignor's due performance of his entire obligation can be assigned despite agreement otherwise.

C. The creation, attachment, perfection or enforcement of a security interest in the seller's interest under a contract is not a transfer that materially changes the duty of or increases materially the burden or risk imposed on the buyer or impairs materially the buyer's chance of obtaining return performance within the purview of subsection B unless, and then only to the extent that, enforcement actually results in a delegation of material performance of the seller. Even in that event, the creation, attachment, perfection and enforcement of the security interest remain effective, but:

1. The seller is liable to the buyer for damages caused by the delegation to the extent that the damages could not reasonably be prevented by the buyer; and

2. A court having jurisdiction may grant other appropriate relief, including cancellation of the contract for sale or an injunction against enforcement of the security interest or consummation of the enforcement.

D. Unless the circumstances indicate the contrary a prohibition of assignment of "the contract" is to be construed as barring only the delegation to the assignee of the assignor's performance.

E. An assignment of "the contract" or of "all my rights under the contract" or an assignment in similar general terms is an assignment of rights and unless the language or the circumstances (as in an assignment for security) indicate the contrary, it is a delegation of performance of the duties of the assignor and its acceptance by the assignee constitutes a promise by him to perform those duties. This promise is enforceable by either the assignor or the other party to the original contract.

F. The other party may treat any assignment which delegates performance as creating reasonable grounds for insecurity and may without prejudice to his rights against the assignor demand assurances from the assignee (section 47-2609).

ARTICLE 3. GENERAL OBLIGATION AND CONSTRUCTION OF CONTRACT

§ 47-2301. General obligations of parties

The obligation of the seller is to transfer and deliver and that of the buyer is to accept and pay in accordance with the contract.

§ 47-2302. Unconscionable contract or clause

A. If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

B. When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.

§ 47-2303. Allocation or division of risks

Where this chapter allocates a risk or a burden as between the parties "unless otherwise agreed", the agreement may not only shift the allocation but may also divide the risk or burden.

§ 47-2304. Price payable in money, goods, realty, or otherwise

A. The price can be made payable in money or otherwise. If it is payable in whole or in part in goods each party is a seller of the goods which he is to transfer.

B. Even though all or part of the price is payable in an interest in realty the transfer of the goods and the seller's obligations with reference to them are subject to this chapter, but not the transfer of the interest in realty or the transferor's obligations in connection therewith.

§ 47-2305. Open price term

A. The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if:

3. The price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.

B. A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.

C. When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price.

D. Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account.

§ 47-2306. Output, requirements and exclusive dealings

A. A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.

B. A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.

§ 47-2307. Delivery in single lot or several lots

Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot.

§ 47-2308. Absence of specified place for delivery

1. The place for delivery of goods is the seller's place of business or if he has none his residence; but

2. In a contract for sale of identified goods which to the knowledge of the parties at the time of contracting are in some other place, that place is the place for their delivery; and

§ 47-2309. Absence of specific time provisions; notice of termination

A. The time for shipment or delivery or any other action under a contract if not provided in this chapter or agreed upon shall be a reasonable time.

B. Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party.

C. Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable.

§ 47-2310. Open time for payment or running of credit; authority to ship under reservation

1. Payment is due at the time and place at which the buyer is to receive the goods even though the place of shipment is the place of delivery; and

2. If the seller is authorized to send the goods he may ship them under reservation, and may tender the documents of title, but the buyer may inspect the goods after their arrival before payment is due unless such inspection is inconsistent with the terms of the contract (section 47-2513); and

3. If delivery is authorized and made by way of documents of title otherwise than by paragraph 2 of this section then payment is due at the time and place at which the buyer is to receive the documents regardless of where the goods are to be received; and

4. Where the seller is required or authorized to ship the goods on credit the credit period runs from the time of shipment but post-dating the invoice or delaying its dispatch will correspondingly delay the starting of the credit period.

§ 47-2311. Options and cooperation respecting performance

A. An agreement for sale which is otherwise sufficiently definite (subsection C of section 47-2204) to be a contract is not made invalid by the fact that it leaves particulars of performance to be specified by one of the parties. Any such specification must be made in good faith and within limits set by commercial reasonableness.

B. Unless otherwise agreed specifications relating to assortment of the goods are at the buyer's option and except as otherwise provided in paragraph 3 of subsection A and all of subsection C of section 47-2319 specifications or arrangements relating to shipment are at the seller's option.

C. Where such specification would materially affect the other party's performance but is not seasonably made or where one party's cooperation is necessary to the agreed performance of the other but is not seasonably forthcoming, the other party in addition to all other remedies:

2. May also either proceed to perform in any reasonable manner or after the time for a material part of his own performance treat the failure to specify or to cooperate as a breach by failure to deliver or accept the goods.

§ 47-2312. Warranty of title and against infringement; buyer's obligation against infringement

A. Subject to subsection B there is in a contract for sale a warranty by the seller that:

2. The goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.

B. A warranty under subsection A will be excluded or modified only by specific language or by circumstances which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have.

C. Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with the specifications.

§ 47-2313. Express warranties by affirmation, promise, description, sample

1. Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.

2. Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.

3. Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.

B. It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty.

§ 47-2314. Implied warranty: merchantability; usage of trade

A. Unless excluded or modified (section 47-2316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the service for value of food or drink to be consumed either on the premises or elsewhere is a sale.

2. In the case of fungible goods, are of fair average quality within the description; and

4. Run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and

5. Are adequately contained, packaged, and labeled as the agreement may require; and

6. Conform to the promises or affirmations of fact made on the container or label if any.

C. Unless excluded or modified (section 47-2316), other implied warranties may arise from course of dealing or usage of trade.

§ 47-2315. Implied warranty: fitness for particular purpose

Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified under section 47-2316 an implied warranty that the goods shall be fit for such purpose.

§ 47-2316. Exclusion or modification of warranties

A. Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this chapter on parol or extrinsic evidence (section 47-2202) negation or limitation is inoperative to the extent that such construction is unreasonable.

B. Subject to subsection C of this section, to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that "there are no warranties which extend beyond the description on the face hereof".

1. Unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like "as is", "with all faults" or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty; and

2. When the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and

3. An implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade.

D. Remedies for breach of warranty can be limited in accordance with the provisions of this chapter on liquidation or limitation of damages and on contractual modification of remedy (sections 47-2718 and 47-2719).

§ 47-2317. Cumulation and conflict of warranties express or implied

Warranties whether express or implied shall be construed as consistent with each other and as cumulative, but if such construction is unreasonable the intention of the parties shall determine which warranty is dominant. In ascertaining that intention the following rules apply:

1. Exact or technical specifications displace an inconsistent sample or model or general language of description.

2. A sample from an existing bulk displaces inconsistent general language of description.

3. Express warranties displace inconsistent implied warranties other than an implied warranty of fitness for a particular purpose.

§ 47-2318. Third party beneficiaries of warranties express or implied

A seller's warranty whether express or implied extends to any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such person may use, consume or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section.

§ 47-2319. F.O.B. and F.A.S. terms

A. Unless otherwise agreed the term F.O.B. (which means "free on board") at a named place, even though used only in connection with the stated price, is a delivery term under which:

1. When the term is F.O.B. the place of shipment, the seller must at that place ship the goods in the manner provided in this chapter (section 47-2504) and bear the expense and risk of putting them into the possession of the carrier; or

2. When the term is F.O.B. the place of destination, the seller must at his own expense and risk transport the goods to that place and there tender delivery of them in the manner provided in this chapter (section 47-2503);

3. When under either paragraph 1 or 2 the term is also F.O.B. vessel, car or other vehicle, the seller must in addition at his own expense and risk load the goods on board. If the term is F.O.B. vessel the buyer must name the vessel and in an appropriate case the seller must comply with the provisions of this chapter on the form of bill of lading (section 47-2323).

B. Unless otherwise agreed the term F.A.S. vessel (which means "free alongside") at a named port, even though used only in connection with the stated price, is a delivery term under which the seller must:

1. At his own expense and risk deliver the goods alongside the vessel in the manner usual in that port or on a dock designated and provided by the buyer; and

2. Obtain and tender a receipt for the goods in exchange for which the carrier is under a duty to issue a bill of lading.

C. Unless otherwise agreed in any case falling within paragraph 1 or 3 of subsection A of this section or within subsection B of this section the buyer must seasonably give any needed instructions for making delivery, including when the term is F.A.S. or F.O.B. the loading berth of the vessel and in an appropriate case its name and sailing date. The seller may treat the failure of needed instructions as a failure of cooperation under this chapter (section 47-2311). He may also at his option move the goods in any reasonable manner preparatory to delivery or shipment.

D. Under the term F.O.B. vessel or F.A.S. unless otherwise agreed the buyer must make payment against tender of the required documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents.

§ 47-2320. C.I.F. and C. & F. terms

A. The term C.I.F. means that the price includes in a lump sum the cost of the goods and the insurance and freight to the named destination. The term C. & F. or C.F. means that the price so includes cost and freight to the named destination.

B. Unless otherwise agreed and even though used only in connection with the stated price and destination, the term C.I.F. destination or its equivalent requires the seller at his own expense and risk to:

1. Put the goods into the possession of a carrier at the port for shipment and obtain a negotiable bill or bills of lading covering the entire transportation to the named destination; and

2. Load the goods and obtain a receipt from the carrier (which may be contained in the bill of lading) showing that the freight has been paid or provided for; and

3. Obtain a policy or certificate of insurance, including any war risk insurance, of a kind and on terms then current at the port of shipment in the usual amount, in the currency of the contract, shown to cover the same goods covered by the bill of lading and providing for payment of loss to the order of the buyer or for the account of whom it may concern; but the seller may add to the price the amount of the premium for any such war risk insurance; and

4. Prepare an invoice of the goods and procure any other documents required to effect shipment or to comply with the contract; and

5. Forward and tender with commercial promptness all the documents in due form and with any indorsement necessary to perfect the buyer's rights.

C. Unless otherwise agreed the term C. & F. or its equivalent has the same effect and imposes upon the seller the same obligations and risks as a C.I.F. term except the obligation as to insurance.

D. Under the term C.I.F. or C. & F. unless otherwise agreed the buyer must make payment against tender of the required documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents.

§ 47-2321. C.I.F. or C. & F.: "net landed weights"; "payment on arrival"; warranty of condition on arrival

1. Where the price is based on or is to be adjusted according to "net landed weights", "delivered weights", "out turn" quantity or quality or the like, unless otherwise agreed the seller must reasonably estimate the price. The payment due on tender of the documents called for by the contract is the amount so estimated, but after final adjustment of the price a settlement must be made with commercial promptness.

2. An agreement described in paragraph 1 or any warranty of quality or condition of the goods on arrival places upon the seller the risk of ordinary deterioration, shrinkage and the like in transportation but has no effect on the place or time of identification to the contract for sale or delivery or on the passing of the risk of loss.

3. Unless otherwise agreed where the contract provides for payment on or after arrival of the goods the seller must before payment allow such preliminary inspection as is feasible; but if the goods are lost delivery of the documents and payment are due when the goods should have arrived.

§ 47-2322. Delivery "ex-ship"

A. Unless otherwise agreed a term for delivery of goods "ex-ship" (which means from the carrying vessel) or in equivalent language is not restricted to a particular ship and requires delivery from a ship which has reached a place at the named port of destination where goods of the kind are usually discharged.

1. The seller must discharge all liens arising out of the carriage and furnish the buyer with a direction which puts the carrier under a duty to deliver the goods; and

2. The risk of loss does not pass to the buyer until the goods leave the ship's tackle or are otherwise properly unloaded.

§ 47-2323. Form of bill of lading required in overseas shipment; "overseas"

A. Where the contract contemplates overseas shipment and contains a term C.I.F. or C. & F. or F.O.B. vessel, the seller unless otherwise agreed must obtain a negotiable bill of lading stating that the goods have been loaded on board or, in the case of a term C.I.F. or C. & F., received for shipment.

B. Where in a case within subsection A of this section a bill of lading has been issued in a set of parts, unless otherwise agreed if the documents are not to be sent from abroad the buyer may demand tender of the full set; otherwise only one part of the bill of lading need be tendered. Even if the agreement expressly requires a full set:

1. Due tender of a single part is acceptable within the provisions of this chapter on cure of improper delivery (subsection A of section 47-2508); and

2. Even though the full set is demanded, if the documents are sent from abroad the person tendering an incomplete set may nevertheless require payment upon furnishing an indemnity which the buyer in good faith deems adequate.

C. A shipment by water or by air or a contract contemplating such shipment is "overseas" insofar as by usage of trade or agreement it is subject to the commercial, financing or shipping practices characteristic of international deep water commerce.

§ 47-2324. "No arrival, no sale" term

Under a term "no arrival, no sale" or terms of like meaning, unless otherwise agreed:

1. The seller must properly ship conforming goods and if they arrive by any means he must tender them on arrival but he assumes no obligation that the goods will arrive unless he has caused the non-arrival; and

2. Where without fault of the seller the goods are in part lost or have so deteriorated as no longer to conform to the contract or arrive after the contract time, the buyer may proceed as if there had been casualty to identified goods (section 47-2613).

§ 47-2325. "Letter of credit" term; "confirmed credit"

A. Failure of the buyer seasonably to furnish an agreed letter of credit is a breach of the contract for sale.

B. The delivery to seller of a proper letter of credit suspends the buyer's obligation to pay. If the letter of credit is dishonored, the seller may on seasonable notification to the buyer require payment directly from him.

C. Unless otherwise agreed the term "letter of credit" or "banker's credit" in a contract for sale means an irrevocable credit issued by a financing agency of good repute and, where the shipment is overseas, of good international repute. The term "confirmed credit" means that the credit must also carry the direct obligation of such an agency which does business in the seller's financial market.

§ 47-2326. Sale on approval and sale or return; rights of creditors

A. Unless otherwise agreed, if delivered goods may be returned by the buyer even though they conform to the contract, the transaction is:

B. Goods held on approval are not subject to the claims of the buyer's creditors until acceptance; goods held on sale or return are subject to such claims while in the buyer's possession.

C. Any "or return" term of a contract for sale is to be treated as a separate contract for sale within the statute of frauds section of this chapter (section 47-2201) and as contradicting the sale aspect of the contract within the provisions of this chapter on parol or extrinsic evidence (section 47-2202).

§ 47-2327. Special incidents of sale on approval and sale or return

1. Although the goods are identified to the contract the risk of loss and the title do not pass to the buyer until acceptance; and

2. Use of the goods consistent with the purpose of trial is not acceptance but failure seasonably to notify the seller of election to return the goods is acceptance, and if the goods conform to the contract acceptance of any part is acceptance of the whole; and

3. After due notification of election to return, the return is at the seller's risk and expense but a merchant buyer must follow any reasonable instructions.

1. The option to return extends to the whole or any commercial unit of the goods while in substantially their original condition, but must be exercised seasonably; and

§ 47-2328. Sale by auction

A. In a sale by auction if goods are put up in lots each lot is the subject of a separate sale.

B. A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner. Where a bid is made while the hammer is falling in acceptance of a prior bid the auctioneer may in his discretion reopen the bidding or declare the goods sold under the bid on which the hammer was falling.

C. Such a sale is with reserve unless the goods are in explicit terms put up without reserve. In an auction with reserve the auctioneer may withdraw the goods at any time until he announces completion of the sale. In an auction without reserve, after the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time. In either case a bidder may retract his bid until the auctioneer's announcement of completion of the sale, but a bidder's retraction does not revive any previous bid.

D. If the auctioneer knowingly receives a bid on the seller's behalf or the seller makes or procures such a bid, and notice has not been given that liberty for such bidding is reserved, the buyer may at his option avoid the sale or take the goods at the price of the last good faith bid prior to the completion of the sale. This subsection shall not apply to any bid at a forced sale.

ARTICLE 4. TITLE, CREDITORS AND GOOD FAITH PURCHASES

§ 47-2401. Passing of title; reservation for security; limited application of this section

Each provision of this chapter with regard to the rights, obligations and remedies of the seller, the buyer, purchasers or other third parties applies irrespective of title to the goods except where the provision refers to such title. Insofar as situations are not covered by the other provisions of this chapter and matters concerning title become material the following rules apply:

1. Title to goods cannot pass under a contract for sale prior to their identification to the contract (section 47-2501), and unless otherwise explicitly agreed the buyer acquires by their identification a special property as limited by this title. Any retention or reservation by the seller of the title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a security interest. Subject to these provisions and to the provisions of the chapter on secured transactions (chapter 9 of this title), title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties.

2. Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place; and in particular and despite any reservation of a security interest by the bill of lading:

(a) If the contract requires or authorizes the seller to send the goods to the buyer but does not require him to deliver them at destination, title passes to the buyer at the time and place of shipment; but

(b) If the contract requires delivery at destination, title passes on tender there.

3. Unless otherwise explicitly agreed where delivery is to be made without moving the goods:

(a) If the seller is to deliver a document of title, title passes at the time when and the place where he delivers such documents; or

(b) If the goods are at the time of contracting already identified and no documents are to be delivered, title passes at the time and place of contracting.

4. A rejection or other refusal by the buyer to receive or retain the goods, whether or not justified, or a justified revocation of acceptance revests title to the goods in the seller. Such revesting occurs by operation of law and is not a "sale".

§ 47-2402. Rights of seller's creditors against sold goods

A. Except as provided in subsections B and C of this section, rights of unsecured creditors of the seller with respect to goods which have been identified to a contract for sale are subject to the buyer's rights to recover the goods under this chapter (sections 47-2502 and 47-2716).

B. A creditor of the seller may treat a sale or an identification of goods to a contract for sale as void if as against him a retention of possession by the seller is fraudulent under any rule of law of the state where the goods are situated, except that retention of possession in good faith and current course of trade by a merchant-seller for a commercially reasonable time after a sale of identification is not fraudulent.

C. Nothing in this chapter shall be deemed to impair the rights of creditors of the seller:

1. Under the provisions of the chapter on secured transactions (chapter 9 of this title); or

2. Where identification to the contract or delivery is made not in current course of trade but in satisfaction of or as security for a preexisting claim for money, security or the like and is made under circumstances which under any rule of law of the state where the goods are situated would apart from this chapter constitute the transaction a fraudulent transfer or voidable preference.

§ 47-2403. Power to transfer; good faith purchase of goods; "entrusting"

A. A purchaser of goods acquires all title which his transferor had or had power to transfer except that a purchaser of a limited interest acquires rights only to the extent of the interest purchased. A person with voidable title has power to transfer a good title to a good faith purchaser for value. When goods have been delivered under a transaction of purchase the purchaser has such power even though:

4. The delivery was procured through fraud punishable as larcenous under the criminal law.

B. Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business.

C. "Entrusting" includes any delivery and any acquiescence in retention of possession regardless of any condition expressed between the parties to the delivery or acquiescence and regardless of whether the procurement of the entrusting or the possessor's disposition of the goods have been such as to be larcenous under the criminal law.

D. The rights of other purchasers of goods and of lien creditors are governed by the chapters on secured transactions (chapter 9 of this title), bulk sales (chapter 6 of this title) and documents of title (chapter 7 of this title).

ARTICLE 5. PERFORMANCE

§ 47-2501. Insurable interest in goods; manner of identification of goods

A. The buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which the contract refers even though the goods so identified are non-conforming and he has an option to return or reject them. Such identification can be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement identification occurs:

1. When the contract is made if it is for the sale of goods already existing and identified;

2. If the contract is for the sale of future goods other than those described in paragraph 3, when goods are shipped, marked or otherwise designated by the seller as goods to which the contract refers;

3. When the crops are planted or otherwise become growing crops or the young are conceived if the contract is for the sale of unborn young to be born within twelve months after contracting or for the sale of crops to be harvested within twelve months or the next normal harvest season after contracting whichever is longer.

B. The seller retains an insurable interest in goods so long as title to or any security interest in the goods remains in him and where the identification is by the seller alone he may until default or insolvency or notification to the buyer that the identification is final substitute other goods for those identified.

C. Nothing in this section impairs any insurable interest recognized under any other statute or rule of law.

§ 47-2502. Buyer's right to goods on seller's insolvency

A. Subject to subsections B and C of this section and even though the goods have not been shipped a buyer who has paid a part or all of the price of goods in which he has a special property under the provisions of section 47-2501 may on making and keeping good a tender of any unpaid portion of their price recover them from the seller if:

1. In the case of goods bought for personal, family or household purposes, the seller repudiates or fails to deliver as required by the contract; or

2. In all cases, the seller becomes insolvent within ten days after receipt of the first installment on their price.

B. The buyer's right to recover the goods under subsection A, paragraph 1 of this section vests on acquisition of a special property, even if the seller had not then repudiated or failed to deliver.

C. If the identification creating his special property has been made by the buyer he acquires the right to recover the goods only if they conform to the contract for sale.

§ 47-2503. Manner of seller's tender of delivery

A. Tender of delivery requires that the seller put and hold conforming goods at the buyer's disposition and give the buyer any notification reasonably necessary to enable him to take delivery. The manner, time and place for tender are determined by the agreement and this chapter, and in particular:

1. Tender must be at a reasonable hour, and if it is of goods they must be kept available for the period reasonably necessary to enable the buyer to take possession; but

2. Unless otherwise agreed the buyer must furnish facilities reasonably suited to the receipt of the goods.

B. Where the case is within section 47-2504 respecting shipment tender requires that the seller comply with its provisions.

C. Where the seller is required to deliver at a particular destination tender requires that he comply with subsection A of this section and also in any appropriate case tender documents as described in subsections D and E of this section.

D. Where goods are in the possession of a bailee and are to be delivered without being moved:

1. Tender requires that the seller either tender a negotiable document of title covering such goods or procure acknowledgment by the bailee of the buyer's right to possession of the goods; but

2. Tender to the buyer of a non-negotiable document of title or of a written direction to the bailee to deliver is sufficient tender unless the buyer seasonably objects, and receipt by the bailee of notification of the buyer's rights fixes those rights as against the bailee and all third persons; but risk of loss of the goods and of any failure by the bailee to honor the non-negotiable document of title or to obey the direction remains on the seller until the buyer has had a reasonable time to present the document or direction, and a refusal by the bailee to honor the document or to obey the direction defeats the tender.

1. He must tender all such documents in correct form, except as provided in this chapter with respect to bills of lading in a set (subsection B of section 47-2323); and

2. Tender through customary banking channels is sufficient and dishonor of a draft accompanying the documents constitutes non-acceptance or rejection.

§ 47-2504. Shipment by seller

Where the seller is required or authorized to send the goods to the buyer and the contract does not require him to deliver them at a particular destination, then unless otherwise agreed he must:

1. Put the goods in the possession of such a carrier and make such a contract for their transportation as may be reasonable having regard to the nature of the goods and other circumstances of the case; and

2. Obtain and promptly deliver or tender in due form any document necessary to enable the buyer to obtain possession of the goods or otherwise required by the agreement or by usage of trade; and

3. Promptly notify the buyer of the shipment. Failure to notify the buyer under paragraph 3 or to make a proper contract under paragraph 1 is a ground for rejection only if material delay or loss ensues.

§ 47-2505. Seller's shipment under reservation

1. His procurement of a negotiable bill of lading to his own order or otherwise reserves in him a security interest in the goods. His procurement of the bill to the order of a financing agency or of the buyer indicates in addition only the seller's expectation of transferring that interest to the person named.

2. A non-negotiable bill of lading to himself or his nominee reserves possession of the goods as security but except in a case of conditional delivery (subsection B of section 47-2507) a non-negotiable bill of lading naming the buyer as consignee reserves no security interest even though the seller retains possession of the bill of lading.

B. When shipment by the seller with reservation of a security interest is in violation of the contract for sale it constitutes an improper contract for transportation within section 47-2504 but impairs neither the rights given to the buyer by shipment and identification of the goods to the contract nor the seller's powers as a holder of a negotiable document.

§ 47-2506. Rights of financing agency

A. A financing agency by paying or purchasing for value a draft which relates to a shipment of goods acquires to the extent of the payment or purchase and in addition to its own rights under the draft and any document of title securing it any rights of the shipper in the goods including the right to stop delivery and the shipper's right to have the draft honored by the buyer.

B. The right to reimbursement of a financing agency which has in good faith honored or purchased the draft under commitment to or authority from the buyer is not impaired by subsequent discovery of defects with reference to any relevant document which was apparently regular on its face.

§ 47-2507. Effect of seller's tender; delivery on condition

A. Tender of delivery is a condition to the buyer's duty to accept the goods and, unless otherwise agreed, to his duty to pay for them. Tender entitles the seller to acceptance of the goods and to payment according to the contract.

B. Where payment is due and demanded on the delivery to the buyer of goods or documents of title, his right as against the seller to retain or dispose of them is conditional upon his making the payment due.

§ 47-2508. Cure by seller of improper tender or delivery; replacement

A. Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery.

B. Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender.

§ 47-2509. Risk of loss in the absence of breach

A. Where the contract requires or authorizes the seller to ship the goods by carrier:

1. If it does not require him to deliver them at a particular destination, the risk of loss passes to the buyer when the goods are duly delivered to the carrier even though the shipment is under reservation (section 47-2505); but

2. If it does require him to deliver them at a particular destination and the goods are there duly tendered while in the possession of the carrier, the risk of loss passes to the buyer when the goods are there duly so tendered as to enable the buyer to take delivery.

B. Where the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the buyer:

2. On acknowledgment by the bailee of the buyer's right to possession of the goods; or

3. After his receipt of a non-negotiable document of title or other written direction to deliver, as provided in paragraph 2, subsection D of section 47-2503.

C. In any case not within subsection A or B of this section, the risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant; otherwise the risk passes to the buyer on tender of delivery.

D. The provisions of this section are subject to contrary agreement of the parties and to the provisions of this chapter on sale on approval (section 47-2327) and on effect of breach on risk of loss (section 47-2510).

§ 47-2510. Effect of breach on risk of loss

A. Where a tender or delivery of goods so fails to conform to the contract as to give a right of rejection the risk of their loss remains on the seller until cure or acceptance.

B. Where the buyer rightfully revokes acceptance he may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as having rested on the seller from the beginning.

C. Where the buyer as to conforming goods already identified to the contract for sale repudiates or is otherwise in breach before risk of their loss has passed to him, the seller may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as resting on the buyer for a commercially reasonable time.

§ 47-2511. Tender of payment by buyer; payment by check

A. Unless otherwise agreed tender of payment is a condition to the seller's duty to tender and complete any delivery.

B. Tender of payment is sufficient when made by any means or in any manner current in the ordinary course of business unless the seller demands payment in legal tender and gives any extension of time reasonably necessary to procure it.

C. Subject to the provisions of this title on the effect of an instrument on an obligation (section 47-3310), payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment.

§ 47-2512. Payment by buyer before inspection

A. Where the contract requires payment before inspection non-conformity of the goods does not excuse the buyer from so making payment unless:

2. Despite tender of the required documents the circumstances would justify injunction against honor under this title (section 47-5109, subsection B).

B. Payment pursuant to subsection A of this section does not constitute an acceptance of goods or impair the buyer's right to inspect or any of his remedies.

§ 47-2513. Buyer's right to inspection of goods

A. Unless otherwise agreed and subject to subsection C of this section, where goods are tendered or delivered or identified to the contract for sale, the buyer has a right before payment or acceptance to inspect them at any reasonable place and time and in any reasonable manner. When the seller is required or authorized to send the goods to the buyer, the inspection may be after their arrival.

B. Expenses of inspection must be borne by the buyer but may be recovered from the seller if the goods do not conform and are rejected.

C. Unless otherwise agreed and subject to the provisions of this chapter on C.I.F. contracts (subsection C of section 47-2321), the buyer is not entitled to inspect the goods before payment of the price when the contract provides:

2. For payment against documents of title, except where such payment is due only after the goods are to become available for inspection.

D. A place or method of inspection fixed by the parties is presumed to be exclusive but unless otherwise expressly agreed it does not postpone identification or shift the place for delivery or for passing the risk of loss. If compliance becomes impossible, inspection shall be as provided in this section unless the place or method fixed was clearly intended as an indispensable condition failure of which avoids the contract.

§ 47-2514. When documents deliverable on acceptance; when on payment

Unless otherwise agreed documents against which a draft is drawn are to be delivered to the drawee on acceptance of the draft if it is payable more than three days after presentment; otherwise, only on payment.

§ 47-2515. Preserving evidence of goods in dispute

1. Either party on reasonable notification to the other and for the purpose of ascertaining the facts and preserving evidence has the right to inspect, test and sample the goods including such of them as may be in the possession or control of the other; and

2. The parties may agree to a third party inspection or survey to determine the conformity or condition of the goods and may agree that the findings shall be binding upon them in any subsequent litigation or adjustment.

ARTICLE 6. BREACH, REPUDIATION AND EXCUSE

§ 47-2601. Buyer's rights on improper delivery

Subject to the provisions of this chapter on breach in installment contracts (section 47-2612) and unless otherwise agreed under the sections on contractual limitations of remedy (sections 47-2718 and 47-2719), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may:

§ 47-2602. Manner and effect of rightful rejection

A. Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller.

1. After rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller; and

2. If the buyer has before rejection taken physical possession of goods in which he does not have a security interest under the provisions of this chapter (subsection C of section 47-2711), he is under a duty after rejection to hold them with reasonable care at the seller's disposition for a time sufficient to permit the seller to remove them; but

3. The buyer has no further obligations with regard to goods rightfully rejected.

C. The seller's rights with respect to goods wrongfully rejected are governed by the provisions of this chapter on seller's remedies in general (section 47-2703).

§ 47-2603. Merchant buyer's duties as to rightfully rejected goods

A. Subject to any security interest in the buyer (subsection C of section 47-2711), when the seller has no agent or place of business at the market of rejection a merchant buyer is under a duty after rejection of goods in his possession or control to follow any reasonable instructions received from the seller with respect to the goods and in the absence of such instructions to make reasonable efforts to sell them for the seller's account if they are perishable or threaten to decline in value speedily. Instructions are not reasonable if on demand indemnity for expenses is not forthcoming.

B. When the buyer sells goods under subsection A of this section, he is entitled to reimbursement from the seller or out of the proceeds for reasonable expenses of caring for and selling them, and if the expenses include no selling commission then to such commission as is usual in the trade or if there is none to a reasonable sum not exceeding ten per cent on the gross proceeds.

C. In complying with this section the buyer is held only to good faith and good faith conduct hereunder is neither acceptance nor conversion nor the basis of an action for damages.

§ 47-2604. Buyer's options as to salvage of rightfully rejected goods

Subject to the provisions of section 47-2603 on perishables if the seller gives no instructions within a reasonable time after notification of rejection the buyer may store the rejected goods for the seller's account or reship them to him or resell them for the seller's account with reimbursement as provided in section 47-2603. Such action is not acceptance or conversion.

§ 47-2605. Waiver of buyer's objections by failure to particularize

A. The buyer's failure to state in connection with rejection a particular defect which is ascertainable by reasonable inspection precludes him from relying on the unstated defect to justify rejection or to establish breach:

2. Between merchants when the seller has after rejection made a request in writing for a full and final written statement of all defects on which the buyer proposes to rely.

B. Payment against documents made without reservation of rights precludes recovery of the payment for defects apparent on the face of the documents.

§ 47-2606. What constitutes acceptance of goods

1. After a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their non-conformity; or

2. Fails to make an effective rejection (subsection A of section 47-2602), but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them; or

3. Does any act inconsistent with the seller's ownership; but if such act is wrongful as against the seller it is an acceptance only if ratified by him.

B. Acceptance of a part of any commercial unit is acceptance of that entire unit.

§ 47-2607. Effect of acceptance; notice of breach; burden of establishing breach after acceptance; notice of claim or litigation to person answerable over

B. Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a non-conformity cannot be revoked because of it unless the acceptance was on the reasonable assumption that the non-conformity would be seasonably cured but acceptance does not of itself impair any other remedy provided by this chapter for non-conformity.

1. The buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy; and

2. If the claim is one for infringement or the like (subsection C of section 47-2312) and the buyer is sued as a result of such a breach he must so notify the seller within a reasonable time after he receives notice of the litigation or be barred from any remedy over for liability established by the litigation.

D. The burden is on the buyer to establish any breach with respect to the goods accepted.

E. Where the buyer is sued for breach of a warranty or other obligation for which his seller is answerable over:

1. He may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact common to the two litigations, then unless the seller after seasonable receipt of the notice does come in and defend he is so bound.

2. If the claim is one for infringement or the like (subsection C of section 47-2312) the original seller may demand in writing that his buyer turn over to him control of the litigation including settlement or else be barred from any remedy over and if he also agrees to bear all expense and to satisfy any adverse judgment, then unless the buyer after seasonable receipt of the demand does turn over control the buyer is so barred.

F. The provisions of subsections C, D and E of this section apply to any obligation of a buyer to hold the seller harmless against infringement or the like (subsection C of section 47-2312).

§ 47-2608. Revocation of acceptance in whole or in part

A. The buyer may revoke his acceptance of a lot or commercial unit whose nonconformity substantially impairs its value to him if he has accepted it:

1. On the reasonable assumption that its nonconformity would be cured and it has not been seasonably cured; or

2. Without discovery of such nonconformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances.

B. Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it.

C. A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them.

D. The provisions of this section do not apply to a new motor vehicle which is subject to the provisions of title 44, chapter 9, article 5.

§ 47-2609. Right to adequate assurance of performance

A. A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.

B. Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards.

C. Acceptance of any improper delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance.

D. After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract.

§ 47-2610. Anticipatory repudiation

When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may:

1. For a commercially reasonable time await performance by the repudiating party; or

2. Resort to any remedy for breach (section 47-2703 or 47-2711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and

3. In either case suspend his own performance or proceed in accordance with the provisions of this chapter on the seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (section 47-2704).

§ 47-2611. Retraction of anticipatory repudiation

A. Until the repudiating party's next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation final.

B. Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assurance justifiably demanded under the provisions of this chapter (section 47-2609).

C. Retraction reinstates the repudiating party's rights under the contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation.

§ 47-2612. "Installment contract"; breach

A. An "installment contract" is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause "each delivery is a separate contract" or its equivalent.

B. The buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured or if the non-conformity is a defect in the required documents; but if the non-conformity does not fall within subsection C and the seller gives adequate assurance of its cure the buyer must accept that installment.

C. Whenever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole. But the aggrieved party reinstates the contract if he accepts a non-conforming installment without seasonably notifying of cancellation or if he brings an action with respect only to past installments or demands performance as to future installments.

§ 47-2613. Casualty to identified goods

Where the contract requires for its performance goods identified when the contract is made, and the goods suffer casualty without fault of either party before the risk of loss passes to the buyer, or in a proper case under a "no arrival, no sale" term (section 47-2324) then:

2. If the loss is partial or the goods have so deteriorated as no longer to conform to the contract the buyer may nevertheless demand inspection and at his option either treat the contract as avoided or accept the goods with due allowance from the contract price for the deterioration or the deficiency in quantity but without further right against the seller.

§ 47-2614. Substituted performance

A. Where without fault of either party the agreed berthing, loading, or unloading facilities fail or an agreed type of carrier becomes unavailable or the agreed manner of delivery otherwise becomes commercially impracticable but a commercially reasonable substitute is available, such substitute performance must be tendered and accepted.

B. If the agreed means or manner of payment fails because of domestic or foreign governmental regulation, the seller may withhold or stop delivery unless the buyer provides a means or manner of payment which is commercially a substantial equivalent. If delivery has already been taken, payment by the means or in the manner provided by the regulation discharges the buyer's obligation unless the regulation is discriminatory, oppressive or predatory.

§ 47-2615. Excuse by failure of presupposed conditions

Except so far as a seller may have assumed a greater obligation and subject to section 47-2614 on substituted performance:

1. Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs 2 and 3 of this section is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.

2. Where the causes mentioned in paragraph 1 of this section affect only a part of the seller's capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable.

3. The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required under paragraph 2 of this section, of the estimated quota thus made available for the buyer.

§ 47-2616. Procedure on notice claiming excuse

A. Where the buyer receives notification of a material or indefinite delay or an allocation justified under section 47-2615 he may by written notification to the seller as to any delivery concerned, and where the prospective deficiency substantially impairs the value of the whole contract under the provisions of this chapter relating to breach of installment contracts (section 47-2612), then also as to the whole:

B. If after receipt of such notification from the seller the buyer fails so to modify the contract within a reasonable time not exceeding thirty days the contract lapses with respect to any deliveries affected.

C. The provisions of this section may not be negated by agreement except in so far as the seller has assumed a greater obligation under section 47-2615.

ARTICLE 7. REMEDIES

§ 47-2701. Remedies for breach of collateral contracts not impaired

Remedies for breach of any obligation or promise collateral or ancillary to a contract for sale are not impaired by the provisions of this chapter.

§ 47-2702. Seller's remedies on discovery of buyer's insolvency

A. Where the seller discovers the buyer to be insolvent he may refuse delivery except for cash including payment for all goods theretofore delivered under the contract, and stop delivery under this chapter (section 47-2705).

B. Where the seller discovers that the buyer has received goods on credit while insolvent he may reclaim the goods upon demand made within ten days after the receipt, but if misrepresentation of solvency has been made to the particular seller in writing within three months before delivery the ten-day limitation does not apply. Except as provided in this subsection the seller may not base a right to reclaim goods on the buyer's fraudulent or innocent misrepresentation of solvency or of intent to pay.

C. The seller's right to reclaim under subsection B is subject to the rights of a buyer in ordinary course or other good faith purchaser or lien creditor under this chapter (section 47-2403). Successful reclamation of goods excludes all other remedies with respect to them.

§ 47-2703. Seller's remedies in general

Where the buyer wrongfully rejects or revokes acceptance of goods or fails to make a payment due on or before delivery or repudiates with respect to a part or the whole, then with respect to any goods directly affected and, if the breach is of the whole contract (section 47-2612), then also with respect to the whole undelivered balance, the aggrieved seller may:

3. Proceed under section 47-2704 respecting goods still unidentified to the contract.

5. Recover damages for non-acceptance (section 47-2708) or in a proper case the price (section 47-2709).

§ 47-2704. Seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods

1. Identify to the contract conforming goods not already identified if at the time he learned of the breach they are in his possession or control.

2. Treat as the subject of resale goods which have demonstrably been intended for the particular contract even though those goods are unfinished.

B. Where the goods are unfinished an aggrieved seller may in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization either complete the manufacture and wholly identify the goods to the contract or cease manufacture and resell for scrap or salvage value or proceed in any other reasonable manner.

§ 47-2705. Seller's stoppage of delivery in transit or otherwise

A. The seller may stop delivery of goods in the possession of a carrier or other bailee when he discovers the buyer to be insolvent (section 47-2702) and may stop delivery of carload, truckload, planeload or larger shipments of express or freight when the buyer repudiates or fails to make a payment due before delivery or if for any other reason the seller has a right to withhold or reclaim the goods.

2. Acknowledgment to the buyer by any bailee of the goods except a carrier that the bailee holds the goods for the buyer; or

3. Such acknowledgment to the buyer by a carrier by reshipment or as warehouseman; or

4. Negotiation to the buyer of any negotiable document of title covering the goods.

C. To stop delivery the seller must so notify as to enable the bailee by reasonable diligence to prevent delivery of the goods.

D. After such notification the bailee must hold and deliver the goods according to the directions of the seller but the seller is liable to the bailee for any ensuing charges or damages.

E. If a negotiable document of title has been issued for goods the bailee is not obliged to obey a notification to stop until surrender of the document.

F. A carrier who has issued a non-negotiable bill of lading is not obliged to obey a notification to stop received from a person other than the consignor.

§ 47-2706. Seller's resale including contract for resale

A. Under the conditions stated in section 47-2703 on seller's remedies, the seller may resell the goods concerned or the undelivered balance thereof. Where the resale is made in good faith and in a commercially reasonable manner the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions of this chapter (section 47-2710), but less expenses saved in consequence of the buyer's breach.

B. Except as otherwise provided in subsection C of this section or unless otherwise agreed resale may be at public or private sale including sale by way of one or more contracts to sell or of identification to an existing contract of the seller. Sale may be as a unit or in parcels and at any time and place and on any terms but every aspect of the sale including the method, manner, time, place and terms must be commercially reasonable. The resale must be reasonably identified as referring to the broken contract, but it is not necessary that the goods be in existence or that any or all of them have been identified to the contract before the breach.

C. Where the resale is at private sale the seller must give the buyer reasonable notification of his intention to resell.

1. Only identified goods can be sold except where there is a recognized market for a public sale of futures in goods of the kind; and

2. It must be made at a usual place or market for public sale if one is reasonably available and except in the case of goods which are perishable or threaten to decline in value speedily the seller must give the buyer reasonable notice of the time and place of the resale; and

3. If the goods are not to be within the view of those attending the sale the notification of sale must state the place where the goods are located and provide for their reasonable inspection by prospective bidders; and

E. A purchaser who buys in good faith at a resale takes the goods free of any rights of the original buyer even though the seller fails to comply with one or more of the requirements of this section.

F. The seller is not accountable to the buyer for any profit made on any resale. A person in the position of a seller (section 47-2707) or a buyer who has rightfully rejected or justifiably revoked acceptance must account for any excess over the amount of his security interest, as hereinafter defined (subsection C of section 47-2711).

§ 47-2707. "Person in the position of a seller"

A. A "person in the position of a seller" includes as against a principal an agent who has paid or become responsible for the price of goods on behalf of his principal or anyone who otherwise holds a security interest or other right in goods similar to that of a seller.

B. A person in the position of a seller may as provided in this chapter withhold or stop delivery (section 47-2705) and resell (section 47-2706) and recover incidental damages (section 47-2710).

§ 47-2708. Seller's damages for non-acceptance or repudiation

A. Subject to subsection B of this section and to the provisions of this chapter with respect to proof of market price (section 47-2723), the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this chapter (section 47-2710), but less expenses saved in consequence of the buyer's breach.

B. If the measure of damages provided in subsection A of this section is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this chapter (section 47-2710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale.

§ 47-2709. Action for the price

A. When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under the next section, the price:

1. Of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer; and

2. Of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing.

B. Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are still in his control except that if resale becomes possible he may resell them at any time prior to the collection of the judgment. The net proceeds of any such resale must be credited to the buyer and payment of the judgment entitles him to any goods not resold.

C. After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated (section 47-2610), a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance under section 47-2708.

§ 47-2710. Seller's incidental damages

Incidental damages to an aggrieved seller include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the buyer's breach, in connection with return or resale of the goods or otherwise resulting from the breach.

§ 47-2711. Buyer's remedies in general; buyer's security interest in rejected goods

A. Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance then with respect to any goods involved, and with respect to the whole if the breach goes to the whole contract (section 47-2612), the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid:

1. "Cover" and have damages under section 47-2712 as to all the goods affected whether or not they have been identified to the contract; or

2. Recover damages for non-delivery as provided in this chapter (section 47-2713).

1. If the goods have been identified recover them as provided in this chapter (section 47-2502); or

2. In a proper case obtain specific performance or replevy the goods as provided in this chapter (section 47-2716).

C. On rightful rejection or justifiable revocation of acceptance a buyer has a security interest in goods in his possession or control for any payments made on their price and any expenses reasonably incurred in their inspection, receipt, transportation, care and custody and may hold such goods and resell them in like manner as an aggrieved seller (section 47-2706).

§ 47-2712. "Cover"; buyer's procurement of substitute goods

A. After a breach within section 47-2711 the buyer may "cover" by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller.

B. The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined (section 47-2715), but less expenses saved in consequence of the seller's breach.

C. Failure of the buyer to effect cover within this section does not bar him from any other remedy.

§ 47-2713. Buyer's damages for non-delivery or repudiation

A. Subject to the provisions of this chapter with respect to proof of market price (section 47-2723), the measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this chapter (section 47-2715), but less expenses saved in consequence of the seller's breach.

B. Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival.

§ 47-2714. Buyer's damages for breach in regard to accepted goods

A. Where the buyer has accepted goods and given notification (subsection C of section 47-2607) he may recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from the seller's breach as determined in any manner which is reasonable.

B. The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount.

C. In a proper case any incidental and consequential damages under section 47-2715 may also be recovered.

§ 47-2715. Buyer's incidental and consequential damages

A. Incidental damages resulting from the seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.

1. Any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and

2. Injury to person or property proximately resulting from any breach of warranty.

§ 47-2716. Buyer's right to specific performance or replevin

A. Specific performance may be decreed where the goods are unique or in other proper circumstances.

B. The decree for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just.

C. The buyer has a right of replevin for goods identified to the contract if after reasonable effort he is unable to effect cover for such goods or the circumstances reasonably indicate that such effort will be unavailing or if the goods have been shipped under reservation and satisfaction of the security interest in them has been made or tendered. In the case of goods bought for personal, family or household purposes, the buyer's right of replevin vests on acquisition of a special property, even if the seller had not then repudiated or failed to deliver.

§ 47-2717. Deduction of damages from the price

The buyer on notifying the seller of his intention to do so may deduct all or any part of the damages resulting from any breach of the contract from any part of the price still due under the same contract.

§ 47-2718. Liquidation or limitation of damages; deposits

A. Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or non-feasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.

B. Where the seller justifiably withholds delivery of goods because of the buyer's breach, the buyer is entitled to restitution of any amount by which the sum of his payments exceeds:

1. The amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with subsection A of this section, or

2. In the absence of such terms, twenty per cent of the value of the total performance for which the buyer is obligated under the contract or five hundred dollars, whichever is smaller.

C. The buyer's right to restitution under subsection B of this section is subject to offset to the extent that the seller establishes:

1. A right to recover damages under the provisions of this chapter other than subsection A of this section, and

2. The amount or value of any benefits received by the buyer directly or indirectly by reason of the contract.

D. Where a seller has received payment in goods their reasonable value or the proceeds of their resale shall be treated as payments for the purposes of subsection B of this section; but if the seller has notice of the buyer's breach before reselling goods received in part performance, his resale is subject to the conditions laid down in this chapter on resale by an aggrieved seller (section 47-2706).

§ 47-2719. Contractual modification or limitation of remedy

A. Subject to the provisions of subsections B and C of this section and of section 47-2718 on liquidation and limitation of damages:

1. The agreement may provide for remedies in addition to or in substitution for those provided in this chapter and may limit or alter the measure of damages recoverable under this chapter, as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of non-conforming goods or parts; and

2. Resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.

B. Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this title.

C. Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not.

§ 47-2720. Effect of "cancellation" or "rescission" on claims for antecedent breach

Unless the contrary intention clearly appears, expressions of "cancellation" or "rescission" of the contract or the like shall not be construed as a renunciation or discharge of any claim in damages for an antecedent breach.

§ 47-2721. Remedies for fraud

Remedies for material misrepresentation or fraud include all remedies available under this chapter for non-fraudulent breach. Neither rescission or a claim for rescission of the contract for sale nor rejection or return of the goods shall bar or be deemed inconsistent with a claim for damages or other remedy.

§ 47-2722. Who can sue third parties for injury to goods

Where a third party so deals with goods which have been identified to a contract for sale as to cause actionable injury to a party to that contract:

1. A right of action against the third party is in either party to the contract for sale who has title to or a security interest or a special property or an insurable interest in the goods; and if the goods have been destroyed or converted a right of action is also in the party who either bore the risk of loss under the contract for sale or has since the injury assumed that risk as against the other;

2. If at the time of the injury the party plaintiff did not bear the risk of loss as against the other party to the contract for sale and there is no arrangement between them for disposition of the recovery, his suit or settlement is, subject to his own interest, as a fiduciary for the other party to the contract;

3. Either party may with the consent of the other sue for the benefit of whom it may concern.

§ 47-2723. Proof of market price: time and place

A. If an action based on anticipatory repudiation comes to trial before the time for performance with respect to some or all of the goods, any damages based on market price (section 47-2708 or 47-2713) shall be determined according to the price of such goods prevailing at the time when the aggrieved party learned of the repudiation.

B. If evidence of a price prevailing at the times or places described in this chapter is not readily available the price prevailing within any reasonable time before or after the time described or at any other place which in commercial judgment or under usage of trade would serve as a reasonable substitute for the one described may be used, making any proper allowance for the cost of transporting the goods to or from such other place.

C. Evidence of a relevant price prevailing at a time or place other than the one described in this chapter offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise.

§ 47-2724. Admissibility of market quotations

Whenever the prevailing price or value of any goods regularly bought and sold in any established commodity market is in issue, reports in official publications or trade journals or in newspapers or periodicals of general circulation published as the reports of such market shall be admissible in evidence. The circumstances of the preparation of such a report may be shown to affect its weight but not its admissibility.

§ 47-2725. Statute of limitations in contracts for sale

A. An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it.

B. A cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach. A breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered.

C. Where an action commenced within the time limited by subsection A is so terminated as to leave available a remedy by another action for the same breach such other action may be commenced after the expiration of the time limited and within six months after the termination of the first action unless the termination resulted from voluntary discontinuance or from dismissal for failure or neglect to prosecute.

D. This section does not alter the law on tolling of the statute of limitations nor does it apply to causes of action which have accrued before January 1, 1968.

CHAPTER 2A. LEASES

ARTICLE 1. GENERAL PROVISIONS

ARTICLE 2. FORMATION AND CONSTRUCTION OF LEASE CONTRACT

ARTICLE 3. EFFECT OF LEASE CONTRACT

ARTICLE 4. PERFORMANCE OF LEASE CONTRACT REPUDIATED, SUBSTITUTED AND EXCUSED

ARTICLE 5. DEFAULT

ARTICLE 1. GENERAL PROVISIONS

§ 47-2A101. Short Title

This chapter shall be known and may be cited as the uniform commercial code-leases.

§ 47-2A102. Scope

This chapter applies to any transaction, regardless of form, that creates a lease.

§ 47-2A103. Definitions and index of definitions

1. "Buyer in ordinary course of business" means a person who in good faith and without knowledge that the sale to him is in violation of the ownership rights or security interest or leasehold interest of a third party in the goods buys in ordinary course from a person in the business of selling goods of that kind but does not include a pawnbroker. "Buying" may be for cash or by exchange of other property or on secured or unsecured credit and includes receiving goods or documents of title under a preexisting contract for sale but does not include a transfer in bulk or as security for or in total or partial satisfaction of a money debt.

2. "Cancellation" occurs when either party puts an end to the lease contract for default by the other party.

3. "Commercial unit" means such a unit of goods as by commercial usage is a single whole for purposes of lease and division of which materially impairs its character or value on the market or in use. A commercial unit may be a single article, as a machine, or a set of articles, as a suite of furniture or a line of machinery, or a quantity, as a gross or carload, or any other unit treated in use or in the relevant market as a single whole.

4. "Conforming" goods or performance under a lease contract means goods or performance that is in accordance with the obligations under the lease contract.

5. "Consumer lease" means a lease that a lessor regularly engaged in the business of leasing or selling makes to a lessee who is an individual and who takes under the lease primarily for a personal, family or household purpose, if the total payments to be made under the lease contract, excluding payments for options to renew or buy, do not exceed twenty-five thousand dollars.

(b) The lessor acquires the goods or the right to possession and use of the goods in connection with the lease; and

(i) The lessee receives a copy of the contract by which the lessor acquired the goods or the right to possession and use of the goods before signing the lease contract;

(ii) The lessee's approval of the contract by which the lessor acquired the goods or the right to possession and use of the goods is a condition to effectiveness of the lease contract;

(iii) The lessee, before signing the lease contract, receives an accurate and complete statement designating the promises and warranties, and any disclaimers of warranties, limitations or modifications of remedies, or liquidated damages, including those of a third party, such as the manufacturer of the goods, provided to the lessor by the person supplying the goods in connection with or as part of the contract by which the lessor acquired the goods or the right to possession and use of the goods; or

(iv) If the lease is not a consumer lease, the lessor, before the lessee signs the lease contract, informs the lessee in writing of the identity of the person supplying the goods to the lessor, unless the lessee has selected that person and directed the lessor to acquire the goods or the right to possession and use of the goods from that person, that the lessee is entitled under this chapter to the promises and warranties, including those of any third party, provided to the lessor by the person supplying the goods in connection with or as part of the contract by which the lessor acquired the goods or the right to possession and use of the goods, and that the lessee may communicate with the person supplying the goods to the lessor and receive an accurate and complete statement of those promises and warranties, including any disclaimers and limitations of them or of remedies.

8. "Goods" means all things that are movable at the time of identification to the lease contract, or are fixtures (section 47-2A309), but the term does not include money, documents, instruments, accounts, chattel paper, general intangibles or minerals or the like, including oil and gas, before extraction. The term also includes the unborn young of animals.

9. "Installment lease contract" means a lease contract that authorizes or requires the delivery of goods in separate lots to be separately accepted, even though the lease contract contains a clause "each delivery is a separate lease" or its equivalent.

10. "Lease" means a transfer of the right to possession and use of goods for a term in return for consideration, but a sale, including a sale on approval or a sale or return, or retention or creation of a security interest is not a lease. Unless the context clearly indicates otherwise, the term includes a sublease.

11. "Lease agreement" means the bargain, with respect to the lease, of the lessor and the lessee in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance as provided in this article. Unless the context clearly indicates otherwise, the term includes a sublease agreement.

12. "Lease contract" means the total legal obligation that results from the lease agreement as affected by this chapter and any other applicable rules of law. Unless the context clearly indicates otherwise, the term includes a sublease contract.

13. "Leasehold interest" means the interest of the lessor or the lessee under a lease contract.

14. "Lessee" means a person who acquires the right to possession and use of goods under a lease. Unless the context clearly indicates otherwise, the term includes a sublessee.

15. "Lessee in ordinary course of business" means a person who in good faith and without knowledge that the lease to him is in violation of the ownership rights or security interest or leasehold interest of a third party in the goods leases in ordinary course from a person in the business of selling or leasing goods of that kind but does not include a pawnbroker. "Leasing" may be for cash or by exchange of other property or on secured or unsecured credit and includes receiving goods or documents of title under a preexisting lease contract but does not include a transfer in bulk or as security for or in total or partial satisfaction of a money debt.

16. "Lessor" means a person who transfers the right to possession and use of goods under a lease. Unless the context clearly indicates otherwise, the term includes a sublessor.

17. "Lessor's residual interest" means the lessor's interest in the goods after expiration, termination or cancellation of the lease contract.

18. "Lien" means a charge against or interest in goods to secure payment of a debt or performance of an obligation, but the term does not include a security interest.

19. "Lot" means a parcel or a single article that is the subject matter of a separate lease or delivery, whether or not it is sufficient to perform the lease contract.

20. "Merchant lessee" means a lessee that is a merchant with respect to goods of the kind subject to the lease.

21. "Present value" means the amount as of a date certain of one or more sums payable in the future, discounted to the date certain. The discount is determined by the interest rate specified by the parties if the rate was not manifestly unreasonable at the time the transaction was entered into. Otherwise, the discount is determined by a commercially reasonable rate that takes into account the facts and circumstances of each case at the time the transaction was entered into.

22. "Purchase" includes taking by sale, lease, mortgage, security interest, pledge, gift or any other voluntary transaction creating an interest in goods.

23. "Sublease" means a lease of goods the right to possession and use of which was acquired by the lessor as a lessee under an existing lease.

24. "Supplier" means a person from whom a lessor buys or leases goods to be leased under a finance lease.

25. "Supply contract" means a contract under which a lessor buys or leases goods to be leased.

26. "Termination" occurs when either party pursuant to a power created by agreement or law puts an end to the lease contract otherwise than for default.

B. Other definitions applying to this chapter and the sections in which they appear are:

D. In addition, chapter 1 of this title contains general definitions and principles of construction and interpretation applicable throughout this chapter.

§ 47-2A104. Leases subject to other law

A. A lease, although subject to this chapter, is also subject to any applicable:

3. Consumer protection statute of this state, or final consumer protection decision of a court of this state existing on the effective date of this chapter.

B. In case of conflict between this chapter, other than section 47-2A105, section 47-2A304, subsection C and section 47-2A305, subsection C, and a statute or decision referred to in subsection A of this section, the statute or decision controls.

C. Failure to comply with an applicable law has only the effect specified therein.

§ 47-2A105. Territorial application of chapter to goods covered by certificate of title

Subject to the provisions of section 47-2A304, subsection C and section 47-2A305, subsection C, with respect to goods covered by a certificate of title issued under a statute of this state or of another jurisdiction, compliance and the effect of compliance or noncompliance with a certificate of title statute are governed by the law, including the conflict of laws rules, of the jurisdiction issuing the certificate until the earlier of surrender of the certificate or four months after the goods are removed from that jurisdiction and thereafter until a new certificate of title is issued by another jurisdiction.

§ 47-2A106. Limitation on power of parties to consumer lease to choose applicable law and judicial forum

A. If the law chosen by the parties to a consumer lease is that of a jurisdiction other than a jurisdiction in which the lessee resides at the time the lease agreement becomes enforceable or within thirty days thereafter or in which the goods are to be used, the choice is not enforceable.

B. If the judicial forum chosen by the parties to a consumer lease is a forum that would not otherwise have jurisdiction over the lessee, the choice is not enforceable.

§ 47-2A107. Waiver or renunciation of claim or right after default

Any claim or right arising out of an alleged default or breach of warranty may be discharged in whole or in part without consideration by a written waiver or renunciation signed and delivered by the aggrieved party.

§ 47-2A108. Unconscionability

A. If the court as a matter of law finds a lease contract or any clause of a lease contract to have been unconscionable at the time it was made the court may refuse to enforce the lease contract, or it may enforce the remainder of the lease contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

B. With respect to a consumer lease, if the court as a matter of law finds that a lease contract or any clause of a lease contract has been induced by unconscionable conduct or that unconscionable conduct has occurred in the collection of a claim arising from a lease contract, the court may grant appropriate relief.

C. Before making a finding of unconscionability under subsection A or B, the court, on its own motion or that of a party, shall afford the parties a reasonable opportunity to present evidence as to the setting, purpose and effect of the lease contract or clause thereof, or of the conduct.

D. In an action in which the lessee claims unconscionability with respect to a consumer lease:

1. If the court finds unconscionability under subsection A or B, the court shall award reasonable attorney fees to the lessee.

2. If the court does not find unconscionability and the lessee claiming unconscionability has brought or maintained an action he or she knew to be groundless, the court shall award reasonable attorney fees to the party against whom the claim is made.

3. In determining attorney fees, the amount of the recovery on behalf of the claimant under subsections A and B is not controlling.

§ 47-2A109. Option to accelerate at will

A. A term providing that one party or his successor in interest may accelerate payment or performance or require collateral or additional collateral "at will" or "when he deems himself insecure" or in words of similar import must be construed to mean that he has power to do so only if he in good faith believes that the prospect of payment or performance is impaired.

B. `With respect to a consumer lease, the burden of establishing good faith under subsection A is on the party who exercised the power. Otherwise the burden of establishing lack of good faith is on the party against whom the power has been exercised.

ARTICLE 2. FORMATION AND CONSTRUCTION OF LEASE CONTRACT

§ 47-2A201. Statute of frauds

1. The total payments to be made under the lease contract, excluding payments for options to renew or buy, are less than one thousand dollars; or

2. There is a writing, signed by the party against whom enforcement is sought or by that party's authorized agent, sufficient to indicate that a lease contract has been made between the parties and to describe the goods leased and the lease term.

B. Any description of leased goods or of the lease term is sufficient and satisfies subsection A, paragraph 2, whether or not it is specific, if it reasonably identifies what is described.

C. A writing is not insufficient because it omits or incorrectly states a term agreed upon, but the lease contract is not enforceable under subsection A, paragraph 2 beyond the lease term and the quantity of goods shown in the writing.

D. A lease contract that does not satisfy the requirements of subsection A, but which is valid in other respects, is enforceable:

1. If the goods are to be specially manufactured or obtained for the lessee and are not suitable for lease or sale to others in the ordinary course of the lessor's business, and the lessor, before notice of repudiation is received and under circumstances that reasonably indicate that the goods are for the lessee, has made either a substantial beginning of their manufacture or commitments for their procurement;

2. If the party against whom enforcement is sought admits in that party's pleading, testimony or otherwise in court that a lease contract was made, but the lease contract is not enforceable under this provision beyond the quantity of goods admitted; or

1. If there is a writing signed by the party against whom enforcement is sought or by that party's authorized agent specifying the lease term, the term so specified;

2. If the party against whom enforcement is sought admits in that party's pleading, testimony or otherwise in court a lease term, the term so admitted; or

§ 47-2A202. Final written expression; parol or extrinsic evidence

2. By evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.

§ 47-2A203. Seals inoperative

The affixing of a seal to a writing evidencing a lease contract or an offer to enter into a lease contract does not render the writing a sealed instrument and the law with respect to sealed instruments does not apply to the lease contract or offer.

§ 47-2A204. Formation in general

A. A lease contract may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of a lease contract.

B. An agreement sufficient to constitute a lease contract may be found although the moment of its making is undetermined.

C. Although one or more terms are left open, a lease contract does not fail for indefiniteness if the parties have intended to make a lease contract and there is a reasonably certain basis for giving an appropriate remedy.

§ 47-2A205. Firm offers

An offer by a merchant to lease goods to or from another person in a signed writing that by its terms gives assurance it will be held open is not revocable, for lack of consideration, during the time stated or, if no time is stated, for a reasonable time, but in no event may the period of irrevocability exceed three months. Any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

§ 47-2A206. Offer and acceptance in formation of lease contract

A. Unless otherwise unambiguously indicated by the language or circumstances, an offer to make a lease contract must be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances.

B. If the beginning of a requested performance is a reasonable mode of acceptance, an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.

§ 47-2A207. Course of performance or practical construction

A. If a lease contract involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is relevant to determine the meaning of the lease agreement.

B. The express terms of a lease agreement and any course of performance, as well as any course of dealing and usage of trade, must be construed whenever reasonable as consistent with each other, but if that construction is unreasonable, express terms control course of performance, course of performance controls both course of dealing and usage of trade, and course of dealing controls usage of trade.

C. Subject to the provisions of section 47-2A208 on modification and waiver, course of performance is relevant to show a waiver or modification of any term inconsistent with the course of performance.

§ 47-2A208. Modification, rescission and waiver

A. An agreement modifying a lease contract needs no consideration to be binding.

B. A signed lease agreement that excludes modification or rescission except by a signed writing may not be otherwise modified or rescinded, but, except as between merchants, such a requirement on a form supplied by a merchant must be separately signed by the other party.

C. Although an attempt at modification or rescission does not satisfy the requirements of subsection B, it may operate as a waiver.

D. A party who has made a waiver affecting an executory portion of a lease contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

§ 47-2A209. Lessee under finance lease as beneficiary of supply contract

A. The benefit of a supplier's promises to the lessor under the supply contract and of all warranties, whether express or implied, including those of any third party provided in connection with or as part of the supply contract, extends to the lessee to the extent of the lessee's leasehold interest under a finance lease related to the supply contract, but is subject to the terms of the warranty and of the supply contract and all defenses or claims arising therefrom.

B. The extension of the benefit of a supplier's promises and of warranties to the lessee (subsection A) does not:

1. Modify the rights and obligations of the parties to the supply contract, whether arising therefrom or otherwise; or

C. Any modification or rescission of the supply contract by the supplier and the lessor is effective between the supplier and the lessee unless, before the modification or rescission, the supplier has received notice that the lessee has entered into a finance lease related to the supply contract. If the modification or rescission is effective between the supplier and the lessee, the lessor is deemed to have assumed, in addition to the obligations of the lessor to the lessee under the lease contract, promises of the supplier to the lessor and warranties that were so modified or rescinded as they existed and were available to the lessee before modification or rescission.

D. In addition to the extension of the benefit of the supplier's promises and of warranties to the lessee under subsection A, the lessee retains all rights that the lessee may have against the supplier which arise from an agreement between the lessee and the supplier or under other law.

§ 47-2A210. Express warranties

1. Any affirmation of fact or promise made by the lessor to the lessee which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods will conform to the affirmation or promise.

2. Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods will conform to the description.

3. Any sample or model that is made part of the basis of the bargain creates an express warranty that the whole of the goods will conform to the sample or model.

B. It is not necessary to the creation of an express warranty that the lessor use formal words, such as "warrant" or "guarantee", or that the lessor have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the lessor's opinion or commendation of the goods does not create a warranty.

§ 47-2A211. Warranties against interference and against infringement; lessee's obligation against infringement

A. There is in a lease contract a warranty that for the lease term no person holds a claim to or interest in the goods that arose from an act or omission of the lessor, other than a claim by way of infringement or the like, which will interfere with the lessee's enjoyment of its leasehold interest.

B. Except in a finance lease there is in a lease contract by a lessor who is a merchant regularly dealing in goods of the kind a warranty that the goods are delivered free of the rightful claim of any person by way of infringement or the like.

C. A lessee who furnishes specifications to a lessor or a supplier shall hold the lessor and the supplier harmless against any claim by way of infringement or the like that arises out of compliance with the specifications.

§ 47-2A212. Implied warranty of merchantability

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

1. Pass without objection in the trade under the description in the lease agreement;

2. In the case of fungible goods, are of fair average quality within the description;

4. Run, within the variation permitted by the lease agreement, of even kind, quality and quantity within each unit and among all units involved;

5. Are adequately contained, packaged and labeled as the lease agreement may require; and

6. Conform to any promises or affirmations of fact made on the container or label.

§ 47-2A213. Implied warranty of fitness for particular purpose

Except in a finance lease, if the lessor at the time the lease contract is made has reason to know of any particular purpose for which the goods are required and that the lessee is relying on the lessor's skill or judgment to select or furnish suitable goods, there is in the lease contract an implied warranty that the goods will be fit for that purpose.

§ 47-2A214. Exclusion or modification of warranties

A. Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit a warranty must be construed wherever reasonable as consistent with each other, but, subject to the provisions of section 47-2A202 on parol or extrinsic evidence, negation or limitation is inoperative to the extent that the construction is unreasonable.

B. Subject to subsection C of this section, to exclude or modify the implied warranty of merchantability or any part of it the language must mention "merchantability", be by a writing and be conspicuous. Subject to subsection C of this section, to exclude or modify any implied warranty of fitness the exclusion must be by a writing and be conspicuous. Language to exclude all implied warranties of fitness is sufficient if it is in writing, is conspicuous and states, for example, "There is no warranty that the goods will be fit for a particular purpose".

C. Notwithstanding subsection B of this section, but subject to subsection D of this section:

1. Unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like "as is", or "with all faults", or by other language that in common understanding calls the lessee's attention to the exclusion of warranties and makes plain that there is no implied warranty, if in writing and conspicuous;

2. If the lessee before entering into the lease contract has examined the goods or the sample or model as fully as desired or has refused to examine the goods, there is no implied warranty with regard to defects that an examination ought in the circumstances to have revealed; and

3. An implied warranty may also be excluded or modified by course of dealing, course of performance or usage of trade.

D. To exclude or modify a warranty against interference or against infringement (section 47-2A211) or any part of it, the language must be specific, be by a writing and be conspicuous, unless the circumstances, including course of performance, course of dealing or usage of trade, give the lessee reason to know that the goods are being leased subject to a claim or interest of any person.

§ 47-2A215. Cumulation and conflict of warranties express or implied

Warranties, whether express or implied, must be construed as consistent with each other and as cumulative, but if that construction is unreasonable, the intention of the parties determines which warranty is dominant. In ascertaining that intention the following rules apply:

1. Exact or technical specifications displace an inconsistent sample or model or general language of description.

2. A sample from an existing bulk displaces inconsistent general language of description.

3. Express warranties displace inconsistent implied warranties other than an implied warranty of fitness for a particular purpose.

§ 47-2A216. Third-party beneficiaries of express and implied warranties

A warranty to or for the benefit of a lessee under this chapter, whether express or implied, extends to any natural person who is in the family or household of the lessee or who is a guest in the lessee's home if it is reasonable to expect that such person may use, consume or be affected by the goods and who is injured in person by breach of the warranty. This section does not displace principles of law and equity that extend a warranty to or for the benefit of a lessee to other persons. The operation of this section may not be excluded, modified or limited, but an exclusion, modification or limitation of the warranty, including any with respect to rights and remedies, effective against the lessee is also effective against any beneficiary designated under this section.

§ 47-2A217. Identification

Identification of goods as goods to which a lease contract refers may be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement, identification occurs:

1. When the lease contract is made if the lease contract is for a lease of goods that are existing and identified;

2. When the goods are shipped, marked or otherwise designated by the lessor as goods to which the lease contract refers, if the lease contract is for a lease of goods that are not existing and identified; or

3. When the young are conceived, if the lease contract is for a lease of unborn young of animals.

§ 47-2A218. Insurance and proceeds

A. A lessee obtains an insurable interest when existing goods are identified to the lease contract even though the goods identified are nonconforming and the lessee has an option to reject them.

B. If a lessee has an insurable interest only by reason of the lessor's identification of the goods, the lessor, until default or insolvency or notification to the lessee that identification is final, may substitute other goods for those identified.

C. Notwithstanding a lessee's insurable interest under subsections A and B, the lessor retains an insurable interest until an option to buy has been exercised by the lessee and risk of loss has passed to the lessee.

D. Nothing in this section impairs any insurable interest recognized under any other statute or rule of law.

E. The parties by agreement may determine that one or more parties have an obligation to obtain and pay for insurance covering the goods and by agreement may determine the beneficiary of the proceeds of the insurance.

§ 47-2A219. Risk of loss

A. Except in the case of a finance lease, risk of loss is retained by the lessor and does not pass to the lessee. In the case of a finance lease, risk of loss passes to the lessee.

B. Subject to the provisions of this chapter on the effect of default on risk of loss (section 47-2A220), if risk of loss is to pass to the lessee and the time of passage is not stated, the following rules apply:

1. If the lease contract requires or authorizes the goods to be shipped by carrier and it does not require delivery at a particular destination, the risk of loss passes to the lessee when the goods are duly delivered to the carrier, but if it does require delivery at a particular destination and the goods are there duly tendered while in the possession of the carrier, the risk of loss passes to the lessee when the goods are there duly so tendered as to enable the lessee to take delivery.

2. If the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the lessee on acknowledgment by the bailee of the lessee's right to possession of the goods.

3. In any case not within paragraph 1 or 2 of this subsection, the risk of loss passes to the lessee on the lessee's receipt of the goods if the lessor, or, in the case of a finance lease, the supplier, is a merchant. Otherwise the risk passes to the lessee on tender of delivery.

C. Notwithstanding subsections A and B of this section, the parties to the lease may determine the risk of loss by written agreement.

§ 47-2A220. Effect of default on risk of loss

A. Where risk of loss is to pass to the lessee and the time of passage is not stated:

1. If a tender or delivery of goods so fails to conform to the lease contract as to give a right of rejection, the risk of their loss remains with the lessor, or, in the case of a finance lease, the supplier, until cure or acceptance.

2. If the lessee rightfully revokes acceptance, he, to the extent of any deficiency in his effective insurance coverage, may treat the risk of loss as having remained with the lessor from the beginning.

B. Whether or not risk of loss is to pass to the lessee, if the lessee as to conforming goods already identified to a lease contract repudiates or is otherwise in default under the lease contract, the lessor, or, in the case of a finance lease, the supplier, to the extent of any deficiency in his effective insurance coverage may treat the risk of loss as resting on the lessee for a commercially reasonable time.

§ 47-2A221. Casualty to identified goods

If a lease contract requires goods identified when the lease contract is made, and the goods suffer casualty without fault of the lessee, the lessor or the supplier before delivery, or the goods suffer casualty before risk of loss passes to the lessee pursuant to the lease agreement or section 47-2A219, then:

2. If the loss is partial or the goods have so deteriorated as to no longer conform to the lease contract, the lessee may nevertheless demand inspection and at his option either treat the lease contract as avoided or, except in a finance lease that is not a consumer lease, accept the goods with due allowance from the rent payable for the balance of the lease term for the deterioration or the deficiency in quantity but without further right against the lessor.

ARTICLE 3. EFFECT OF LEASE CONTRACT

§ 47-2A301. Enforceability of lease contract

Except as otherwise provided in this chapter, a lease contract is effective and enforceable according to its terms between the parties, against purchasers of the goods and against creditors of the parties.

§ 47-2A302. Title to and possession of goods

Except as otherwise provided in this chapter, each provision of this chapter applies whether the lessor or a third party has title to the goods, and whether the lessor, the lessee or a third party has possession of the goods, notwithstanding any statute or rule of law that possession or the absence of possession is fraudulent.

§ 47-2A303. Alienability of party's interest under lease contract or of lessor's residual interest in goods; delegation of performance; transfer of rights

A. As used in this section, "creation of a security interest" includes the sale of a lease contract that is subject to chapter 9 of this title, secured transactions, by reason of section 47-9109, subsection A, paragraph 3.

B. Except as provided in subsection C of this section and section 47-9407, a provision in a lease agreement which prohibits the voluntary or involuntary transfer, including a transfer by sale, sublease, creation or enforcement of a security interest, or attachment, levy or other judicial process, of an interest of a party under the lease contract or of the lessor's residual interest in the goods, or makes such a transfer an event of default, gives rise to the rights and remedies provided in subsection D of this section, but a transfer that is prohibited or is an event of default under the lease agreement is otherwise effective.

C. A provision in a lease agreement which prohibits a transfer of a right to damages for default with respect to the whole lease contract or of a right to payment arising out of the transferor's due performance of the transferor's entire obligation, or makes such a transfer an event of default, is not enforceable, and such a transfer is not a transfer that materially impairs the prospect of obtaining return performance by, materially changes the duty of or materially increases the burden or risk imposed on, the other party to the lease contract within the purview of subsection D of this section.

1. If a transfer is made which is made an event of default under a lease agreement, the party to the lease contract not making the transfer, unless that party waives the default or otherwise agrees, has the rights and remedies described in section 47-2A501, subsection B;

2. If paragraph 1 of this subsection is not applicable and if a transfer is made that is prohibited under a lease agreement or materially impairs the prospect of obtaining return performance by, materially changes the duty of or materially increases the burden or risk imposed on, the other party to the lease contract, unless the party not making the transfer agrees at any time to the transfer in the lease contract or otherwise, then, except as limited by contract, the transferor is liable to the party not making the transfer for damages caused by the transfer to the extent that the damages could not reasonably be prevented by the party not making the transfer and a court having jurisdiction may grant other appropriate relief, including cancellation of the lease contract or an injunction against the transfer.

E. A transfer of "the lease" or of "all my rights under the lease", or a transfer in similar general terms, is a transfer of rights and, unless the language or the circumstances, as in a transfer for security, indicate the contrary, the transfer is a delegation of duties by the transferor to the transferee. Acceptance by the transferee constitutes a promise by the transferee to perform those duties. The promise is enforceable by either the transferor or the other party to the lease contract.

F. Unless otherwise agreed by the lessor and the lessee, a delegation of performance does not relieve the transferor as against the other party of any duty to perform or of any liability for default.

G. In a consumer lease, to prohibit the transfer of an interest of a party under the lease contract or to make a transfer an event of default, the language must be specific, by a writing, and conspicuous.

§ 47-2A304. Subsequent lease of goods by lessor

A. Subject to section 47-2A303, a subsequent lessee from a lessor of goods under an existing lease contract obtains, to the extent of the leasehold interest transferred, the leasehold interest in the goods that the lessor had or had power to transfer, and except as provided in subsection B of this section and section 47-2A527, subsection D, takes subject to the existing lease contract. A lessor with voidable title has power to transfer a good leasehold interest to a good faith subsequent lessee for value, but only to the extent set forth in the preceding sentence. If goods have been delivered under a transaction of purchase, the lessor has that power even though:

4. The delivery was procured through fraud punishable as larcenous under the criminal law.

B. A subsequent lessee in the ordinary course of business from a lessor who is a merchant dealing in goods of that kind to whom the goods were entrusted by the existing lessee of that lessor before the interest of the subsequent lessee became enforceable against that lessor obtains, to the extent of the leasehold interest transferred, all of that lessor's and the existing lessee's rights to the goods, and takes free of the existing lease contract.

C. A subsequent lessee from the lessor of goods that are subject to an existing lease contract and are covered by a certificate of title issued under a statute of this state or of another jurisdiction takes no greater rights than those provided both by this section and by the certificate of title statute.

§ 47-2A305. Sale or sublease of goods by lessee

A. Subject to the provisions of section 47-2A303, a buyer or sublessee from the lessee of goods under an existing lease contract obtains, to the extent of the interest transferred, the leasehold interest in the goods that the lessee had or had power to transfer, and except as provided in subsection B of this section and section 47-2A511, subsection D, takes subject to the existing lease contract. A lessee with a voidable leasehold interest has power to transfer a good leasehold interest to a good faith buyer for value or a good faith sublessee for value, but only to the extent set forth in the preceding sentence. When goods have been delivered under a transaction of lease the lessee has that power even though:

3. The delivery was procured through fraud punishable as larcenous under the criminal law.

B. A buyer in the ordinary course of business or a sublessee in the ordinary course of business from a lessee who is a merchant dealing in goods of that kind to whom the goods were entrusted by the lessor obtains, to the extent of the interest transferred, all of the lessor's and lessee's rights to the goods, and takes free of the existing lease contract.

C. A buyer or sublessee from the lessee of goods that are subject to an existing lease contract and are covered by a certificate of title issued under a statute of this State or of another jurisdiction takes no greater rights than those provided both by this section and by the certificate of title statute.

§ 47-2A306. Priority of certain liens arising by operation of law

If a person in the ordinary course of his business furnishes services or materials with respect to goods subject to a lease contract, a lien upon those goods in the possession of that person given by statute or rule of law for those materials or services takes priority over any interest of the lessee under the lease contract or this chapter unless the lien is created by statute and the statute provides otherwise or unless the lien is created by rule of law and the rule of law provides otherwise.

§ 47-2A307. Priority of liens arising by attachment or levy on, security interests in and other claims to goods

A. Except as otherwise provided in section 47-2A306, a creditor of a lessee takes subject to the lease contract.

B. Except as otherwise provided in subsection C of this section and in sections 47-2A306 and 47-2A308, a creditor of a lessor takes subject to the lease contract unless the creditor holds a lien that attached to the goods before the lease contract became enforceable.

C. Except as otherwise provided in sections 47-9317, 47-9321 and 47-9323, a lessee takes a leasehold interest subject to a security interest held by a creditor of the lessor.

§ 47-2A308. Special rights of creditors

A. A creditor of a lessor in possession of goods subject to a lease contract may treat the lease contract as void if as against the creditor retention of possession by the lessor is fraudulent under any statute or rule of law, but retention of possession in good faith and current course of trade by the lessor for a commercially reasonable time after the lease contract becomes enforceable is not fraudulent.

B. Nothing in this chapter impairs the rights of creditors of a lessor if the lease contract becomes enforceable, not in current course of trade but in satisfaction of or as security for a preexisting claim for money, security or the like, and is made under circumstances which under any statute or rule of law apart from this chapter would constitute the transaction a fraudulent transfer or voidable preference.

C. A creditor of a seller may treat a sale or an identification of goods to a contract for sale as void if as against the creditor retention of possession by the seller is fraudulent under any statute or rule of law, but retention of possession of the goods pursuant to a lease contract entered into by the seller as lessee and the buyer as lessor in connection with the sale or identification of the goods is not fraudulent if the buyer bought for value and in good faith.

§ 47-2A309. Lessor's and lessee's rights when goods become fixtures

1. Goods are "fixtures" when they become so related to particular real estate that an interest in them arises under real estate law;

2. A "fixture filing" is the filing, in the office where a record of a mortgage on the real estate would be filed or recorded, of a financing statement covering goods that are or are to become fixtures and conforming to the requirements of section 47-9502, subsections A and B;

3. A lease is a "purchase money lease" unless the lessee has possession or use of the goods or the right to possession or use of the goods before the lease agreement is enforceable;

4. A mortgage is a "construction mortgage" to the extent it secures an obligation incurred for the construction of an improvement on land including the acquisition cost of the land, if the recorded writing so indicates; and

5. "Encumbrance" includes real estate mortgages and other liens on real estate and all other rights in real estate that are not ownership interests.

B. Under this article a lease may be of goods that are fixtures or may continue in goods that become fixtures, but no lease exists under this article of ordinary building materials incorporated into an improvement on land.

C. This article does not prevent creation of a lease of fixtures pursuant to real estate law.

D. The perfected interest of a lessor of fixtures has priority over a conflicting interest of an encumbrancer or owner of the real estate if:

1. The lease is a purchase money lease, the conflicting interest of the encumbrancer or owner arises before the goods become fixtures, the interest of the lessor is perfected by a fixture filing before the goods become fixtures or within ten days thereafter, and the lessee has an interest of record in the real estate or is in possession of the real estate; or

2. The interest of the lessor is perfected by a fixture filing before the interest of the encumbrancer or owner is of record, the lessor's interest has priority over any conflicting interest of a predecessor in title of the encumbrancer or owner, and the lessee has an interest of record in the real estate or is in possession of the real estate.

E. The interest of a lessor of fixtures, whether or not perfected, has priority over the conflicting interest of an encumbrancer or owner of the real estate if:

1. The fixtures are readily removable factory or office machines, readily removable equipment that is not primarily used or leased for use in the operation of the real estate, or readily removable replacements of domestic appliances that are goods subject to a consumer lease, and before the goods become fixtures the lease contract is enforceable;

2. The conflicting interest is a lien on the real estate obtained by legal or equitable proceedings after the lease contract is enforceable;

3. The encumbrancer or owner has consented in writing to the lease or has disclaimed an interest in the goods as fixtures; or

4. The lessee has a right to remove the goods as against the encumbrancer or owner. If the lessee's right to remove terminates, the priority of the interest of the lessor continues for a reasonable time.

F. Notwithstanding subsection D, paragraph 1 of this section but otherwise subject to subsections D and E of this section, the interest of a lessor of fixtures, including the lessor's residual interest, is subordinate to the conflicting interest of an encumbrancer of the real estate under a construction mortgage recorded before the goods become fixtures if the goods become fixtures before the completion of the construction. To the extent given to refinance a construction mortgage, the conflicting interest of an encumbrancer of the real estate under a mortgage has this priority to the same extent as the encumbrancer of the real estate under the construction mortgage.

G. In cases not within the preceding subsections, priority between the interest of a lessor of fixtures, including the lessor's residual interest, and the conflicting interest of an encumbrancer or owner of the real estate who is not the lessee is determined by the priority rules governing conflicting interests in real estate.

H. If the interest of a lessor of fixtures, including the lessor's residual interest, has priority over all conflicting interests of all owners and encumbrancers of the real estate, the lessor or the lessee may on default, expiration, termination or cancellation of the lease agreement but subject to the lease agreement and this chapter, or if necessary to enforce other rights and remedies of the lessor or lessee under this chapter, remove the goods from the real estate, free and clear of all conflicting interests of all owners and encumbrancers of the real estate, but the lessor or lessee must reimburse any encumbrancer or owner of the real estate who is not the lessee and who has not otherwise agreed for the cost of repair of any physical injury, but not for any diminution in value of the real estate caused by the absence of the goods removed or by any necessity of replacing them. A person entitled to reimbursement may refuse permission to remove until the party seeking removal gives adequate security for the performance of this obligation.

I. Even though the lease agreement does not create a security interest, the interest of a lessor of fixtures, including the lessor's residual interest, is perfected by filing a financing statement as a fixture filing for leased goods that are or are to become fixtures in accordance with the relevant provisions of the chapter on secured transactions (chapter 9 of this title).

§ 47-2A310. Lessor's and lessee's rights when goods become accessions

B. The interest of a lessor or a lessee under a lease contract entered into before the goods became accessions is superior to all interests in the whole except as stated in subsection D.

C. The interest of a lessor or a lessee under a lease contract entered into at the time or after the goods became accessions is superior to all subsequently acquired interests in the whole except as stated in subsection D but is subordinate to interests in the whole existing at the time the lease contract was made unless the holders of such interests in the whole have in writing consented to the lease or disclaimed an interest in the goods as part of the whole.

D. The interest of a lessor or a lessee under a lease contract described in subsection B or C is subordinate to the interest of:

1. A buyer in the ordinary course of business or a lessee in the ordinary course of business of any interest in the whole acquired after the goods became accessions; or

2. A creditor with a security interest in the whole perfected before the lease contract was made to the extent that the creditor makes subsequent advances without knowledge of the lease contract.

E. When under subsection B or subsections C and D a lessor or a lessee of accessions holds an interest that is superior to all interests in the whole, the lessor or the lessee may on default, expiration, termination or cancellation of the lease contract by the other party but subject to the provisions of the lease contract and this chapter, or if necessary to enforce his other rights and remedies under this chapter, remove the goods from the whole, free and clear of all interests in the whole, but he must reimburse any holder of an interest in the whole who is not the lessee and who has not otherwise agreed for the cost of repair of any physical injury but not for any diminution in value of the whole caused by the absence of the goods removed or by any necessity for replacing them. A person entitled to reimbursement may refuse permission to remove until the party seeking removal gives adequate security for the performance of this obligation.

§ 47-2A311. Priority subject to subordination

Nothing in this article prevents subordination by agreement by any person entitled to priority.

ARTICLE 4. PERFORMANCE OF LEASE CONTRACT REPUDIATED, SUBSTITUTED AND EXCUSED

§ 47-2A401. Insecurity; adequate assurance of performance

A. A lease contract imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired.

B. If reasonable grounds for insecurity arise with respect to the performance of either party, the insecure party may demand in writing adequate assurance of due performance. Until the insecure party receives that assurance, if commercially reasonable the insecure party may suspend any performance for which he has not already received the agreed return.

C. A repudiation of the lease contract occurs if assurance of due performance adequate under the circumstances of the particular case is not provided to the insecure party within a reasonable time, not to exceed thirty days after receipt of a demand by the other party.

D. Between merchants, the reasonableness of grounds for insecurity and the adequacy of any assurance offered must be determined according to commercial standards.

E. Acceptance of any nonconforming delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance.

§ 47-2A402. Anticipatory repudiation

If either party repudiates a lease contract with respect to a performance not yet due under the lease contract, the loss of which performance will substantially impair the value of the lease contract to the other, the aggrieved party may:

1. For a commercially reasonable time, await retraction of repudiation and performance by the repudiating party;

2. Make demand pursuant to section 47-2A401 and await assurance of future performance adequate under the circumstances of the particular case; or

3. Resort to any right or remedy upon default under the lease contract or this article, even though the aggrieved party has notified the repudiating party that the aggrieved party would await the repudiating party's performance and assurance and has urged retraction.

In addition, whether or not the aggrieved party is pursuing one of the foregoing remedies, the aggrieved party may suspend performance or, if the aggrieved party is the lessor, proceed in accordance with the provisions of this article on the lessor's right to identify goods to the lease contract notwithstanding default or to salvage unfinished goods (section 47-2A524).

§ 47-2A403. Retraction of anticipatory repudiation

A. Until the repudiating party's next performance is due, the repudiating party can retract the repudiation unless, since the repudiation, the aggrieved party has cancelled the lease contract or materially changed the aggrieved party's position or otherwise indicated that the aggrieved party considers the repudiation final.

B. Retraction may be by any method that clearly indicates to the aggrieved party that the repudiating party intends to perform under the lease contract and includes any assurance demanded under section 47-2A401.

C. Retraction reinstates a repudiating party's rights under a lease contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation.

§ 47-2A404. Substituted performance

A. If without fault of the lessee, the lessor and the supplier, the agreed berthing, loading or unloading facilities fail or the agreed type of carrier becomes unavailable or the agreed manner of delivery otherwise becomes commercially impracticable, but a commercially reasonable substitute is available, the substitute performance must be tendered and accepted.

B. If the agreed means or manner of payment fails because of domestic or foreign governmental regulation:

1. The lessor may withhold or stop delivery or cause the supplier to withhold or stop delivery unless the lessee provides a means or manner of payment that is commercially a substantial equivalent; and

2. If delivery has already been taken, payment by the means or in the manner provided by the regulation discharges the lessee's obligation unless the regulation is discriminatory, oppressive or predatory.

§ 47-2A405. Excused performance

Subject to section 47-2A404 on substituted performance, the following rules apply:

1. Delay in delivery or nondelivery in whole or in part by a lessor or a supplier who complies with paragraphs 2 and 3 of this section is not a default under the lease contract if performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the lease contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order, whether or not the regulation or order later proves to be invalid.

2. If the causes mentioned in paragraph 1 of this section affect only part of the lessor's or the supplier's capacity to perform, he shall allocate production and deliveries among his customers but at his option may include regular customers not then under contract for sale or lease as well as his own requirements for further manufacture. He may so allocate in any manner that is fair and reasonable.

3. The lessor seasonably shall notify the lessee and in the case of a finance lease the supplier seasonably shall notify the lessor and the lessee, if known, that there will be delay or nondelivery and, if allocation is required under paragraph 2 of this section, of the estimated quota thus made available for the lessee.

§ 47-2A406. Procedure on excused performance

A. If the lessee receives notification of a material or indefinite delay or an allocation justified under section 47-2A405, the lessee may by written notification to the lessor as to any goods involved, and with respect to all of the goods if under an installment lease contract the value of the whole lease contract is substantially impaired (section 47-2A510):

2. Except in a finance lease that is not a consumer lease, modify the lease contract by accepting the available quota in substitution, with due allowance from the rent payable for the balance of the lease term for the deficiency but without further right against the lessor.

B. If, after receipt of a notification from the lessor under section 47-2A405, the lessee fails so to modify the lease agreement within a reasonable time not exceeding thirty days, the lease contract lapses with respect to any deliveries affected.

§ 47-2A407. Irrevocable promises; finance leases

A. In the case of a finance lease that is not a consumer lease the lessee's promises under the lease contract become irrevocable and independent upon the lessee's acceptance of the goods.

1. Is effective and enforceable between the parties, and by or against third parties including assignees of the parties; and

2. Is not subject to cancellation, termination, modification, repudiation, excuse or substitution without the consent of the party to whom the promise runs.

C. This section does not affect the validity under any other law of a covenant in any lease contract making the lessee's promises irrevocable and independent upon the lessee's acceptance of the goods.

ARTICLE 5. DEFAULT

§ 47-2A501. Default; procedure

A. Whether the lessor or the lessee is in default under a lease contract is determined by the lease agreement and this chapter.

B. If the lessor or the lessee is in default under the lease contract, the party seeking enforcement has rights and remedies as provided in this chapter and, except as limited by this chapter, as provided in the lease agreement.

C. If the lessor or the lessee is in default under the lease contract, the party seeking enforcement may reduce the party's claim to judgment, or otherwise enforce the lease contract by self-help or any available judicial procedure or nonjudicial procedure, including administrative proceeding, arbitration or the like, in accordance with this Article.

D. Except as otherwise provided in section 47-1106 or this chapter or the lease agreement, the rights and remedies referred to in subsections B and C of this section are cumulative.

E. If the lease agreement covers both real property and goods, the party seeking enforcement may proceed under this article as to the goods, or under other applicable law as to both the real property and the goods in accordance with that party's rights and remedies in respect of the real property, in which case this article does not apply.

§ 47-2A502. Notice after default

Except as otherwise provided in this chapter or the lease agreement, the lessor or lessee in default under the lease contract is not entitled to notice of default or notice of enforcement from the other party to the lease agreement.

§ 47-2A503. Modification or impairment of rights and remedies

A. Except as otherwise provided in this chapter, the lease agreement may include rights and remedies for default in addition to or in substitution for those provided in this chapter and may limit or alter the measure of damages recoverable under this chapter.

B. Resort to a remedy provided under this chapter or in the lease agreement is optional unless the remedy is expressly agreed to be exclusive. If circumstances cause an exclusive or limited remedy to fail of its essential purpose, or provision for an exclusive remedy is unconscionable, remedy may be had as provided in this chapter.

C. Consequential damages may be liquidated under section 47-2A504, or may otherwise be limited, altered or excluded unless the limitation, alteration or exclusion is unconscionable. Limitation, alteration or exclusion of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation, alteration or exclusion of damages where the loss is commercial is not prima facie unconscionable.

D. Rights and remedies on default by the lessor or the lessee with respect to any obligation or promise collateral or ancillary to the lease contract are not impaired by this chapter.

§ 47-2A504. Liquidation of damages

A. Damages payable by either party for default, or any other act or omission, including indemnity for loss or diminution of anticipated tax benefits or loss or damage to lessor's residual interest, may be liquidated in the lease agreement but only at an amount or by a formula that is reasonable in light of the then anticipated harm caused by the default or other act or omission.

B. If the lease agreement provides for liquidation of damages, and such provision does not comply with subsection A of this section, or such provision is an exclusive or limited remedy that circumstances cause to fail of its essential purpose, remedy may be had as provided in this Article.

C. If the lessor justifiably withholds or stops delivery of goods because of the lessee's default or insolvency (section 47-2A525 or 47-2A526), the lessee is entitled to restitution of any amount by which the sum of his payments exceeds:

1. The amount to which the lessor is entitled by virtue of terms liquidating the lessor's damages in accordance with subsection A of this section; or

2. In the absence of those terms, twenty per cent of the then present value of the total rent the lessee was obligated to pay for the balance of the lease term, or, in the case of a consumer lease, the lesser of such amount or five hundred dollars.

D. A lessee's right to restitution under subsection C of this section is subject to offset to the extent the lessor establishes:

1. A right to recover damages under the provisions of this chapter other than subsection A of this section; and

2. The amount or value of any benefits received by the lessee directly or indirectly by reason of the lease contract.

§ 47-2A505. Cancellation and termination and effect of cancellation, termination, rescission or fraud on rights and remedies

A. On cancellation of the lease contract, all obligations that are still executory on both sides are discharged, but any right based on prior default or performance survives, and the cancelling party also retains any remedy for default of the whole lease contract or any unperformed balance.

B. On termination of the lease contract, all obligations that are still executory on both sides are discharged but any right based on prior default or performance survives.

C. Unless the contrary intention clearly appears, expressions of "cancellation", "rescission" or the like of the lease contract may not be construed as a renunciation or discharge of any claim in damages for an antecedent default.

D. Rights and remedies for material misrepresentation or fraud include, without limitation, all rights and remedies available under this Article for default.

E. Neither rescission nor a claim for rescission of the lease contract nor rejection or return of the goods may bar or be deemed inconsistent with a claim for damages or other right or remedy.

§ 47-2A506. Statute of limitations

A. An action for default under a lease contract, including breach of warranty or indemnity, must be commenced within four years after the cause of action accrued. By the original lease contract the parties may reduce the period of limitation to not less than one year.

B. A cause of action for default accrues when the act or omission on which the default or breach of warranty is based is or should have been discovered by the aggrieved party, or when the default occurs, whichever is later. A cause of action for indemnity accrues when the act or omission on which the claim for indemnity is based is or should have been discovered by the indemnified party, whichever is later.

C. If an action commenced within the time limited by subsection A is so terminated as to leave available a remedy by another action for the same default or breach of warranty or indemnity, the other action may be commenced after the expiration of the time limited and within six months after the termination of the first action unless the termination resulted from voluntary discontinuance or from dismissal for failure or neglect to prosecute.

D. This section does not alter the law on tolling of the statute of limitations nor does it apply to causes of action that have accrued before this chapter becomes effective.

§ 47-2A507. Proof of market rent; time and place

A. Damages based on market rent (section 47-2A519 or 47-2A528) are determined according to the rent for the use of the goods concerned for a lease term identical to the remaining lease term of the original lease agreement and prevailing at the times specified in sections 47-2A519 and 47-2A528.

B. If evidence of rent for the use of the goods concerned for a lease term identical to the remaining lease term of the original lease agreement and prevailing at the times or places described in this chapter is not readily available, the rent prevailing within any reasonable time before or after the time described or at any other place or for a different lease term which in commercial judgment or under usage of trade would serve as a reasonable substitute for the one described may be used, making any proper allowance for the difference, including the cost of transporting the goods to or from the other place.

C. Evidence of a relevant rent prevailing at a time or place or for a lease term other than the one described in this chapter offered by one party is not admissible unless and until he has given the other party notice the court finds sufficient to prevent unfair surprise.

D. If the prevailing rent or value of any goods regularly leased in any established market is in issue, reports in official publications or trade journals or in newspapers or periodicals of general circulation published as the reports of that market are admissible in evidence. The circumstances of the preparation of the report may be shown to affect its weight but not its admissibility.

§ 47-2A508. Lessee's remedies

A. If a lessor fails to deliver the goods in conformity to the lease contract (section 47-2A509) or repudiates the lease contract (section 47-2A402), or a lessee rightfully rejects the goods (section 47-2A509) or justifiably revokes acceptance of the goods (section 47-2A517), then with respect to any goods involved, and with respect to all of the goods if under an installment lease contract the value of the whole lease contract is substantially impaired (section 47-2A510), the lessor is in default under the lease contract and the lessee may:

2. Recover so much of the rent and security as has been paid and is just under the circumstances;

3. Cover and recover damages as to all goods affected whether or not they have been identified to the lease contract (sections 47-2A518 and 47-2A520), or recover damages for nondelivery (sections 47-2A519 and 47-2A520);

4. Exercise any other rights or pursue any other remedies provided in the lease contract.

B. If a lessor fails to deliver the goods in conformity to the lease contract or repudiates the lease contract, the lessee may also:

2. In a proper case, obtain specific performance or replevy the goods (section 47-2A521).

C. If a lessor is otherwise in default under a lease contract, the lessee may exercise the rights and pursue the remedies provided in the lease contract, which may include a right to cancel the lease, and in section 47-2A519, subsection C.

D. If a lessor has breached a warranty, whether express or implied, the lessee may recover damages (section 47-2A519, subsection D).

E. On rightful rejection or justifiable revocation of acceptance, a lessee has a security interest in goods in the lessee's possession or control for any rent and security that has been paid and any expenses reasonably incurred in their inspection, receipt, transportation, and care and custody and may hold those goods and dispose of them in good faith and in a commercially reasonable manner, subject to section 47-2A527, subsection E.

F. Subject to the provisions of section 47-2A407, a lessee, on notifying the lessor of the lessee's intention to do so, may deduct all or any part of the damages resulting from any default under the lease contract from any part of the rent still due under the same lease contract.

§ 47-2A509. Lessee's rights on improper delivery; rightful rejection

A. Subject to the provisions of section 47-2A510 on default in installment lease contracts, if the goods or the tender or delivery fail in any respect to conform to the lease contract, the lessee may reject or accept the goods or accept any commercial unit or units and reject the rest of the goods.

B. Rejection of goods is ineffective unless it is within a reasonable time after tender or delivery of the goods and the lessee seasonably notifies the lessor.

§ 47-2A510. Installment lease contracts; rejection and default

A. Under an installment lease contract a lessee may reject any delivery that is nonconforming if the nonconformity substantially impairs the value of that delivery and cannot be cured or the nonconformity is a defect in the required documents, but if the nonconformity does not fall within subsection B and the lessor or the supplier gives adequate assurance of its cure, the lessee must accept that delivery.

B. Whenever nonconformity or default with respect to one or more deliveries substantially impairs the value of the installment lease contract as a whole there is a default with respect to the whole. But, the aggrieved party reinstates the installment lease contract as a whole if the aggrieved party accepts a nonconforming delivery without seasonably notifying of cancellation or brings an action with respect only to past deliveries or demands performance as to future deliveries.

§ 47-2A511. Merchant lessee's duties as to rightfully rejected goods

A. Subject to any security interest of a lessee (section 47-2A508, subsection E), if a lessor or a supplier has no agent or place of business at the market of rejection, a merchant lessee, after rejection of goods in his possession or control, shall follow any reasonable instructions received from the lessor or the supplier with respect to the goods. In the absence of those instructions, a merchant lessee shall make reasonable efforts to sell, lease or otherwise dispose of the goods for the lessor's account if they threaten to decline in value speedily. Instructions are not reasonable if on demand indemnity for expenses is not forthcoming.

B. If a merchant lessee (subsection A of this section) or any other lessee (section 47-2A512) disposes of goods, he is entitled to reimbursement either from the lessor or the supplier or out of the proceeds for reasonable expenses of caring for and disposing of the goods and, if the expenses include no disposition commission, to such commission as is usual in the trade, or if there is none, to a reasonable sum not exceeding ten per cent of the gross proceeds.

C. In complying with this section or section 47-2A512, the lessee is held only to good faith. Good faith conduct hereunder is neither acceptance or conversion nor the basis of an action for damages.

D. A purchaser who purchases in good faith from a lessee pursuant to this section or section 47-2A512 takes the goods free of any rights of the lessor and the supplier even though the lessee fails to comply with one or more of the requirements of this chapter.

§ 47-2A512. Lessee's duties as to rightfully rejected goods

A. Except as otherwise provided with respect to goods that threaten to decline in value speedily (section 47-2A511) and subject to any security interest of a lessee (section 47-2A508, subsection E):

1. The lessee, after rejection of goods in the lessee's possession, shall hold them with reasonable care at the lessor's or the supplier's disposition for a reasonable time after the lessee's seasonable notification of rejection;

2. If the lessor or the supplier gives no instructions within a reasonable time after notification of rejection, the lessee may store the rejected goods for the lessor's or the supplier's account or ship them to the lessor or the supplier or dispose of them for the lessor's or the supplier's account with reimbursement in the manner provided in section 47-2A511; but

3. The lessee has no further obligations with regard to goods rightfully rejected.

B. Action by the lessee pursuant to subsection A of this section is not acceptance or conversion.

§ 47-2A513. Cure by lessor of improper tender or delivery; replacement

A. If any tender or delivery by the lessor or the supplier is rejected because nonconforming and the time for performance has not yet expired, the lessor or the supplier may seasonably notify the lessee of the lessor's or the supplier's intention to cure and may then make a conforming delivery within the time provided in the lease contract.

B. If the lessee rejects a nonconforming tender that the lessor or the supplier had reasonable grounds to believe would be acceptable with or without money allowance, the lessor or the supplier may have a further reasonable time to substitute a conforming tender if he seasonably notifies the lessee.

§ 47-2A514. Waiver of lessee's objections

A. In rejecting goods, a lessee's failure to state a particular defect that is ascertainable by reasonable inspection precludes the lessee from relying on the defect to justify rejection or to establish default:

1. If, stated seasonably, the lessor or the supplier could have cured it (section 47-2A513); or

2. Between merchants if the lessor or the supplier after rejection has made a request in writing for a full and final written statement of all defects on which the lessee proposes to rely.

B. A lessee's failure to reserve rights when paying rent or other consideration against documents precludes recovery of the payment for defects apparent on the face of the documents.

§ 47-2A515. Acceptance of goods

A. Acceptance of goods occurs after the lessee has had a reasonable opportunity to inspect the goods and:

1. The lessee signifies or acts with respect to the goods in a manner that signifies to the lessor or the supplier that the goods are conforming or that the lessee will take or retain them in spite of their nonconformity; or

2. The lessee fails to make an effective rejection of the goods (section 47-2A509, subsection B).

B. Acceptance of a part of any commercial unit is acceptance of that entire unit.

§ 47-2A516. Effect of acceptance of goods; notice of default; burden of establishing default after acceptance; notice of claim or litigation to person answerable over

A. A lessee must pay rent for any goods accepted in accordance with the lease contract, with due allowance for goods rightfully rejected or not delivered.

B. A lessee's acceptance of goods precludes rejection of the goods accepted. In the case of a finance lease, if made with knowledge of a nonconformity, acceptance cannot be revoked because of it. In any other case, if made with knowledge of a nonconformity, acceptance cannot be revoked because of it unless the acceptance was on the reasonable assumption that the nonconformity would be seasonably cured. Acceptance does not of itself impair any other remedy provided by this article or the lease agreement for nonconformity.

1. Within a reasonable time after the lessee discovers or should have discovered any default, the lessee shall notify the lessor and the supplier, if any, or be barred from any remedy against the party not notified;

2. Except in the case of a consumer lease, within a reasonable time after the lessee receives notice of litigation for infringement or the like (section 47-2A211) the lessee shall notify the lessor or be barred from any remedy over for liability established by the litigation; and

D. If a lessee is sued for breach of a warranty or other obligation for which a lessor or a supplier is answerable over the following apply:

1. The lessee may give the lessor or the supplier, or both, written notice of the litigation. If the notice states that the person notified may come in and defend and that if the person notified does not do so that person will be bound in any action against that person by the lessee by any determination of fact common to the two litigations, then unless the person notified after seasonable receipt of the notice does come in and defend that person is so bound.

2. The lessor or the supplier may demand in writing that the lessee turn over control of the litigation including settlement if the claim is one for infringement or the like (section 47-2A211) or else be barred from any remedy over. If the demand states that the lessor or the supplier agrees to bear all expense and to satisfy any adverse judgment, then unless the lessee after seasonable receipt of the demand does turn over control the lessee is so barred.

E. Subsections C and D of this section apply to any obligation of a lessee to hold the lessor or the supplier harmless against infringement or the like (section 47-2A211).

§ 47-2A517. Revocation of acceptance of goods

A. A lessee may revoke acceptance of a lot or commercial unit whose nonconformity substantially impairs its value to the lessee if the lessee has accepted it:

1. Except in the case of a finance lease, on the reasonable assumption that its nonconformity would be cured and it has not been seasonably cured; or

2. Without discovery of the nonconformity if the lessee's acceptance was reasonably induced either by the lessor's assurances or, except in the case of a finance lease, by the difficulty of discovery before acceptance. In the case of a lease, other than a consumer lease, as to which any modification or waiver must be in writing, any assurance by the lessor which the lessee claims to have induced the lessee's acceptance must also be in writing.

B. Except in the case of a finance lease that is not a consumer lease, a lessee may revoke acceptance of a lot or commercial unit if the lessor defaults under the lease contract and the default substantially impairs the value of that lot or commercial unit to the lessee.

C. If the lease agreement so provides, the lessee may revoke acceptance of a lot or commercial unit because of other defaults by the lessor.

D. Revocation of acceptance must occur within a reasonable time after the lessee discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by the nonconformity. Revocation is not effective until the lessee notifies the lessor.

E. A lessee who so revokes has the same rights and duties with regard to the goods involved as if the lessee had rejected them.

F. The lessee and lessor may, by a conspicuous writing contained in the lease or elsewhere, provide that the provisions of this section will not apply to a new motor vehicle which is otherwise subject to the provisions of title 44, chapter 9, article 5. Any such agreement may be made before or after the discovery of the nonconformity and may take the form of an option extended to either lessor or lessee. When the parties have so agreed, then for the purposes of title 44, chapter 9, article 5, the lessee shall be deemed the consumer of the motor vehicle, with the lessor having all the rights of a lienholder in such motor vehicle.

§ 47-2A518. Cover; substitute goods

A. After a default by a lessor under the lease contract of the type described in section 47-2A508, subsection A, or, if agreed, after other default by the lessor, the lessee may cover by making any purchase or lease of or contract to purchase or lease goods in substitution for those due from the lessor.

B. Except as otherwise provided with respect to damages liquidated in the lease agreement (section 47-2A504) or otherwise determined pursuant to agreement of the parties (section 47-1102, subsection C and section 47-2A503), if a lessee's cover is by a lease agreement substantially similar to the original lease agreement and the new lease agreement is made in good faith and in a commercially reasonable manner, the lessee may recover from the lessor as damages the present value, as of the date of the commencement of the term of the new lease agreement, of the rent under the new lease agreement applicable to that period of the new lease term which is comparable to the then remaining term of the original lease agreement minus the present value as of the same date of the total rent for the then remaining lease term of the original lease agreement, and any incidental or consequential damages, less expenses saved in consequence of the lessor's default.

C. If a lessee's cover is by lease agreement that for any reason does not qualify for treatment under subsection B of this section, or is by purchase or otherwise, the lessee may recover from the lessor as if the lessee had elected not to cover and section 47-2A519 governs.

§ 47-2A519. Lessee's damages for nondelivery, repudiation, default and breach of warranty in regard to accepted goods

A. Except as otherwise provided with respect to damages liquidated in the lease agreement (section 47-2A504) or otherwise determined pursuant to agreement of the parties (section 47-1102, subsection C and section 47-2A503), if a lessee elects not to cover or a lessee elects to cover and the cover is by lease agreement that for any reason does not qualify for treatment under section 47-2A518, subsection B, or is by purchase or otherwise, the measure of damages for nondelivery or repudiation by the lessor or for rejection or revocation of acceptance by the lessee is the present value, as of the date of the default, of the then market rent minus the present value as of the same date of the original rent, computed for the remaining lease term of the original lease agreement, together with incidental and consequential damages, less expenses saved in consequence of the lessor's default.

B. Market rent is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival.

C. Except as otherwise agreed, if the lessee has accepted goods and given notification (section 47-2A516, subsection C), the measure of damages for nonconforming tender or delivery or other default by a lessor is the loss resulting in the ordinary course of events from the lessor's default as determined in any manner that is reasonable together with incidental and consequential damages, less expenses saved in consequence of the lessor's default.

D. Except as otherwise agreed, the measure of damages for breach of warranty is the present value at the time and place of acceptance of the difference between the value of the use of the goods accepted and the value if they had been as warranted for the lease term, unless special circumstances show proximate damages of a different amount, together with incidental and consequential damages, less expenses saved in consequence of the lessor's default or breach of warranty.

§ 47-2A520. Lessee's incidental and consequential damages

A. Incidental damages resulting from a lessor's default include expenses reasonably incurred in inspection, receipt, transportation, and care and custody of goods rightfully rejected or goods the acceptance of which is justifiably revoked, any commercially reasonable charges, expenses or commissions in connection with effecting cover, and any other reasonable expense incident to the default.

1. Any loss resulting from general or particular requirements and needs of which the lessor at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and

2. Injury to person or property proximately resulting from any breach of warranty.

§ 47-2A521. Lessee's right to specific performance or replevin

A. Specific performance may be decreed if the goods are unique or in other proper circumstances.

B. A decree for specific performance may include any terms and conditions as to payment of the rent, damages or other relief that the court deems just.

C. A lessee has a right of replevin, detinue, sequestration, claim and delivery, or the like for goods identified to the lease contract if after reasonable effort the lessee is unable to effect cover for those goods or the circumstances reasonably indicate that the effort will be unavailing.

§ 47-2A522. Lessee's right to goods on lessor's insolvency

A. Subject to subsection B of this section and even though the goods have not been shipped, a lessee who has paid a part or all of the rent and security for goods identified to a lease contract (section 47-2A217) on making and keeping good a tender of any unpaid portion of the rent and security due under the lease contract may recover the goods identified from the lessor if the lessor becomes insolvent within ten days after receipt of the first installment of rent and security.

B. A lessee acquires the right to recover goods identified to a lease contract only if they conform to the lease contract.

§ 47-2A523. Lessor's remedies

A. If a lessee wrongfully rejects or revokes acceptance of goods or fails to make a payment when due or repudiates with respect to a part or the whole, then, with respect to any goods involved, and with respect to all of the goods if under an installment lease contract the value of the whole lease contract is substantially impaired (section 47-2A510), the lessee is in default under the lease contract and the lessor may:

2. Proceed respecting goods not identified to the lease contract (section 47-2A524);

3. Withhold delivery of the goods and take possession of goods previously delivered (section 47-2A525);

5. Dispose of the goods and recover damages (section 47-2A527), or retain the goods and recover damages (section 47-2A528), or in a proper case recover rent (section 47-2A529);

6. Exercise any other rights or pursue any other remedies provided in the lease contract.

B. If a lessor does not fully exercise a right or obtain a remedy to which the lessor is entitled under subsection A of this section, the lessor may recover the loss resulting in the ordinary course of events from the lessee's default as determined in any reasonable manner, together with incidental damages, less expenses saved in consequence of the lessee's default.

C. If a lessee is otherwise in default under a lease contract, the lessor may exercise the rights and pursue the remedies provided in the lease contract, which may include a right to cancel the lease. In addition, unless otherwise provided in the lease contract:

1. If the default substantially impairs the value of the lease contract to the lessor, the lessor may exercise the rights and pursue the remedies provided in subsection A or B of this section; or

2. If the default does not substantially impair the value of the lease contract to the lessor, the lessor may recover as provided in subsection B of this section.

§ 47-2A524. Lessor's right to identify goods to lease contract

A. After default by the lessee under the lease contract of the type described in section 47-2A523, subsection A or section 47-2A523, subsection C, paragraph 1 or, if agreed, after other default by the lessee, the lessor may:

1. Identify to the lease contract conforming goods not already identified if at the time the lessor learned of the default they were in the lessor's or the supplier's possession or control; and

2. Dispose of goods (section 47-2A527, subsection A) that demonstrably have been intended for the particular lease contract even though those goods are unfinished.

B. If the goods are unfinished, in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization, an aggrieved lessor or the supplier may either complete manufacture and wholly identify the goods to the lease contract or cease manufacture and lease, sell or otherwise dispose of the goods for scrap or salvage value or proceed in any other reasonable manner.

§ 47-2A525. Lessor's right to possession of goods

A. If a lessor discovers the lessee to be insolvent, the lessor may refuse to deliver the goods.

B. After a default by the lessee under the lease contract of the type described in section 47-2A523, subsection A or section 47-2A523, subsection C, paragraph 1 or, if agreed, after other default by the lessee, the lessor has the right to take possession of the goods. If the lease contract so provides, the lessor may require the lessee to assemble the goods and make them available to the lessor at a place to be designated by the lessor which is reasonably convenient to both parties. Without removal, the lessor may render unusable any goods employed in trade or business, and may dispose of goods on the lessee's premises (section 47-2A527).

C. The lessor may proceed under subsection B of this section without judicial process if it can be done without breach of the peace or the lessor may proceed by action.

§ 47-2A526. Lessor's stoppage of delivery in transit or otherwise

A. A lessor may stop delivery of goods in the possession of a carrier or other bailee if the lessor discovers the lessee to be insolvent and may stop delivery of carload, truckload, planeload or larger shipments of express or freight if the lessee repudiates or fails to make a payment due before delivery, whether for rent, security or otherwise under the lease contract, or for any other reason the lessor has a right to withhold or take possession of the goods.

B. In pursuing its remedies under subsection A, the lessor may stop delivery until:

2. Acknowledgment to the lessee by any bailee of the goods, except a carrier, that the bailee holds the goods for the lessee; or

3. Such an acknowledgment to the lessee by a carrier via reshipment or as warehouseman.

4. To stop delivery, a lessor shall so notify as to enable the bailee by reasonable diligence to prevent delivery of the goods.

C. After notification, the bailee shall hold and deliver the goods according to the directions of the lessor, but the lessor is liable to the bailee for any ensuing charges or damages.

D. A carrier who has issued a nonnegotiable bill of lading is not obliged to obey a notification to stop received from a person other than the consignor.

§ 47-2A527. Lessor's rights to dispose of goods

A. After a default by a lessee under the lease contract of the type described in section 47-2A523, subsection A or subsection C, paragraph 1 or after the lessor refuses to deliver or takes possession of goods (section 47-2A525 or 47-2A526), or, if agreed, after other default by a lessee, the lessor may dispose of the goods concerned or the undelivered balance thereof by lease, sale or otherwise.

B. Except as otherwise provided with respect to damages liquidated in the lease agreement (section 47-2A504) or otherwise determined pursuant to agreement of the parties (section 47-1102, subsection C and section 47-2A503), if the disposition is by lease agreement substantially similar to the original lease agreement and the new lease agreement is made in good faith and in a commercially reasonable manner, the lessor may recover from the lessee as damages accrued and unpaid rent as of the date of the commencement of the term of the new lease agreement, the present value, as of the same date, of the total rent for the then remaining lease term of the original lease agreement minus the present value, as of the same date, of the rent under the new lease agreement applicable to that period of the new lease term which is comparable to the then remaining term of the original lease agreement, and any incidental damages allowed under section 47-2A530, less expenses saved in consequence of the lessee's default.

C. If the lessor's disposition is by lease agreement that for any reason does not qualify for treatment under subsection B of this section, or is by sale or otherwise, the lessor may recover from the lessee as if the lessor had elected not to dispose of the goods and section 47-2A528 governs.

D. A subsequent buyer or lessee who buys or leases from the lessor in good faith for value as a result of a disposition under this section takes the goods free of the original lease contract and any rights of the original lessee even though the lessor fails to comply with one or more of the requirements of this chapter.

E. The lessor is not accountable to the lessee for any profit made on any disposition. A lessee who has rightfully rejected or justifiably revoked acceptance shall account to the lessor for any excess over the amount of the lessee's security interest (section 47-2A508, subsection E).

§ 47-2A528. Lessor's damages for nonacceptance, failure to pay, repudiation or other default

A. Except as otherwise provided with respect to damages liquidated in the lease agreement (section 47-2A504) or otherwise determined pursuant to agreement of the parties (section 47-1102, subsection C and section 47-2A503), if a lessor elects to retain the goods or a lessor elects to dispose of the goods and the disposition is by lease agreement that for any reason does not qualify for treatment under section 47-2A527, subsection B, or is by sale or otherwise, the lessor may recover from the lessee as damages for a default of the type described in section 47-2A523, subsection A or subsection C, paragraph 1, or, if agreed, for other default of the lessee:

1. Accrued and unpaid rent as of the date of default if the lessee has never taken possession of the goods, or, if the lessee has taken possession of the goods, as of the date the lessor repossesses the goods or an earlier date on which the lessee makes a tender of the goods to the lessor;

2. The present value as of the date determined under paragraph 1 of the total rent for the then remaining lease term of the original lease agreement minus the present value as of the same date of the market rent at the place where the goods are located computed for the same lease term; and

3. Any incidental damages allowed under section 47-2A530, less expenses saved in consequence of the lessee's default.

B. If the measure of damages provided in subsection A of this section is inadequate to put a lessor in as good a position as performance would have, the measure of damages is the present value of the profit, including reasonable overhead, the lessor would have made from full performance by the lessee, together with any incidental damages allowed under section 47-2A530, due allowance for costs reasonably incurred and due credit for payments or proceeds of disposition.

§ 47-2A529. Lessor's action for the rent

A. After default by the lessee under the lease contract of the type described in section 47-2A523, subsection A or subsection C, paragraph 1 or, if agreed, after other default by the lessee, if the lessor complies with subsection B of this section, the lessor may recover from the lessee as damages:

1. For goods accepted by the lessee and not repossessed by or tendered to the lessor, and for conforming goods lost or damaged within a commercially reasonable time after risk of loss passes to the lessee (section 47-2A219), accrued and unpaid rent as of the date of entry of judgment in favor of the lessor, the present value as of the same date of the rent for the then remaining lease term of the lease agreement, and any incidental damages allowed under section 47-2A530, less expenses saved in consequence of the lessee's default; and

2. For goods identified to the lease contract if the lessor is unable after reasonable effort to dispose of them at a reasonable price or the circumstances reasonably indicate that effort will be unavailing, accrued and unpaid rent as of the date of entry of judgment in favor of the lessor, the present value as of the same date of the rent for the then remaining lease term of the lease agreement, and any incidental damages allowed under section 47-2A530, less expenses saved in consequence of the lessee's default.

B. Except as provided in subsection C of this section, the lessor shall hold for the lessee for the remaining lease term of the lease agreement any goods that have been identified to the lease contract and are in the lessor's control.

C. The lessor may dispose of the goods at any time before collection of the judgment for damages obtained pursuant to subsection A of this section. If the disposition is before the end of the remaining lease term of the lease agreement, the lessor's recovery against the lessee for damages is governed by section 47-2A527 or 47-2A528, and the lessor will cause an appropriate credit to be provided against a judgment for damages to the extent that the amount of the judgment exceeds the recovery available pursuant to section 47-2A527 or 47-2A528.

D. Payment of the judgment for damages obtained pursuant to subsection A of this section entitles the lessee to the use and possession of the goods not then disposed of for the remaining lease term of and in accordance with the lease agreement.

E. After default by the lessee under the lease contract of the type described in section 47-2A523, subsection A or subsection C, paragraph 1 or, if agreed, after other default by the lessee, a lessor who is held not entitled to rent under this section must nevertheless be awarded damages for nonacceptance under section 47-2A527 or 47-2A528.

§ 47-2A530. Lessor's incidental damages

Incidental damages to an aggrieved lessor include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the lessee's default, in connection with return or disposition of the goods or otherwise resulting from the default.

§ 47-2A531. Standing to sue third parties for injury to goods

A. If a third party so deals with goods that have been identified to a lease contract as to cause actionable injury to a party to the lease contract the lessor has a right of action against the third party, and the lessee also has a right of action against the third party if the lessee:

3. Bears the risk of loss under the lease contract or has since the injury assumed that risk as against the lessor and the goods have been converted or destroyed.

B. If at the time of the injury the party plaintiff did not bear the risk of loss as against the other party to the lease contract and there is no arrangement between them for disposition of the recovery, his suit or settlement, subject to his own interest, is as a fiduciary for the other party to the lease contract.

C. Either party with the consent of the other may sue for the benefit of whom it may concern.

§ 47-2A532. Lessor's rights to residual interest

In addition to any other recovery permitted by this chapter or other law, the lessor may recover from the lessee an amount that will fully compensate the lessor for any loss of or damage to the lessor's residual interest in the goods caused by the default of the lessee.

CHAPTER 3. NEGOTIABLE INSTRUMENTS

ARTICLE 1. GENERAL PROVISIONS AND DEFINITIONS

ARTICLE 2. NEGOTIATION, TRANSFER AND INDORSEMENT

ARTICLE 3. ENFORCEMENT OF INSTRUMENTS

ARTICLE 4. LIABILITY OF PARTIES

ARTICLE 5. DISHONOR

ARTICLE 6. DISCHARGE AND PAYMENT

ARTICLE 1. GENERAL PROVISIONS AND DEFINITIONS

§ 47-3101. Short title

This chapter may be cited as the Uniform Commercial Code -- Negotiable Instruments.

§ 47-3102. Subject matter

A. This chapter applies to negotiable instruments. It does not apply to money, to payment orders governed by chapter 4A of this title or to securities governed by chapter 8 of this title.

B. If there is conflict between this chapter and chapter 4 or 9 of this title, chapters 4 and 9 of this title govern.

C. Regulations of the board of governors of the federal reserve system and operating circulars of the federal reserve banks supersede any inconsistent provision of this chapter to the extent of the inconsistency.

§ 47-3103. Definitions

3. "Drawer" means a person who signs or is identified in a draft as a person ordering payment.

4. "Good faith" means honesty in fact and the observance of reasonable commercial standards of fair dealing.

5. "Maker" means a person who signs or is identified in a note as a person undertaking to pay.

6. "Order" means a written instruction to pay money signed by the person giving the instruction. The instruction may be addressed to any person, including the person giving the instruction, or to one or more persons jointly or in the alternative but not in succession. An authorization to pay is not an order unless the person authorized to pay is also instructed to pay.

7. "Ordinary care" in the case of a person engaged in business means observance of reasonable commercial standards, prevailing in the area in which the person is located, with respect to the business in which the person is engaged. In the case of a bank that takes an instrument for processing for collection or payment by automated means, reasonable commercial standards do not require the bank to examine the instrument if the failure to examine does not violate the bank's prescribed procedures and the bank's procedures do not vary unreasonably from general banking usage not disapproved by this chapter or chapter 4 of this title.

9. "Promise" means a written undertaking to pay money signed by the person undertaking to pay. An acknowledgment of an obligation by the obligor is not a promise unless the obligor also undertakes to pay the obligation.

10. "Prove" with respect to a fact means to meet the burden of establishing the fact (section 47-1201, paragraph 8).

11. "Remitter" means a person who purchases an instrument from its issuer if the instrument is payable to an identified person other than the purchaser.

B. Other definitions applying to this chapter and the sections in which they appear are:

C. The following definitions in other chapters of this title apply to this chapter:

D. In addition, chapter 1 of this title contains general definitions and principles of construction and interpretation applicable throughout this chapter.

§ 47-3104. Negotiable instrument

A. Except as provided in subsections C and D, "negotiable instrument" means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:

1. Is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

3. Does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain:

(a) An undertaking or power to give, maintain or protect collateral to secure payment;

(b) An authorization or power to the holder to confess judgment or realize on or dispose of collateral; or

C. An order that meets all of the requirements of subsection A, except paragraph 1, and otherwise falls within the definition of "check" in subsection F is a negotiable instrument and a check.

D. A promise or order other than a check is not an instrument if, at the time it is issued or first comes into possession of a holder, it contains a conspicuous statement, however expressed, to the effect that the promise or order is not negotiable or is not an instrument governed by this chapter.

E. An instrument is a "note" if it is a promise and is a "draft" if it is an order. If an instrument falls within the definition of both "note" and "draft", a person entitled to enforce the instrument may treat it as either.

1. A draft, other than a documentary draft, payable on demand and drawn on a bank; or

An instrument may be a check even though it is described on its face by another term, such as "money order".

G. "Cashier's check" means a draft with respect to which the drawer and drawee are the same bank or branches of the same bank.

3. Is designated by the term "traveler's check" or by a substantially similar term; and

4. Requires, as a condition to payment, a countersignature by a person whose specimen signature appears on the instrument.

J. "Certificate of deposit" means an instrument containing an acknowledgment by a bank that a sum of money has been received by the bank and a promise by the bank to repay the sum of money. A certificate of deposit is a note of the bank.

§ 47-3105. Issue of instrument

A. "Issue" means the first delivery of an instrument by the maker or drawer, whether to a holder or nonholder, for the purpose of giving rights on the instrument to any person.

B. An unissued instrument, or an unissued incomplete instrument that is completed, is binding on the maker or drawer, but nonissuance is a defense. An instrument that is conditionally issued or is issued for a special purpose is binding on the maker or drawer, but failure of the condition or special purpose to be fulfilled is a defense.

C. "Issuer" applies to issued and unissued instruments and means a maker or drawer of an instrument.

§ 47-3106. Unconditional promise or order

A. Except as provided in this section, for the purposes of section 47-3104, subsection A, a promise or order is unconditional unless it states:

3. That rights or obligations with respect to the promise or order are stated in another writing.

A reference to another writing does not of itself make the promise or order conditional.

1. By a reference to another writing for a statement of rights with respect to collateral, prepayment or acceleration; or

C. If a promise or order requires, as a condition to payment, a countersignature by a person whose specimen signature appears on the promise or order, the condition does not make the promise or order conditional for the purposes of section 47-3104, subsection A. If the person whose specimen signature appears on an instrument fails to countersign the instrument, the failure to countersign is a defense to the obligation of the issuer, but the failure does not prevent a transferee of the instrument from becoming a holder of the instrument.

D. If a promise or order at the time it is issued or first comes into possession of a holder contains a statement, required by applicable statutory or administrative law, to the effect that the rights of a holder or transferee are subject to claims or defenses that the issuer could assert against the original payee, the promise or order is not thereby made conditional for the purposes of section 47-3104, subsection A, but if the promise or order is an instrument, there cannot be a holder in due course of the instrument.

§ 47-3107. Instrument payable in foreign money

Unless the instrument otherwise provides, an instrument that states the amount payable in foreign money may be paid in the foreign money or in an equivalent amount in dollars calculated by using the current bank-offered spot rate at the place of payment for the purchase of dollars on the day on which the instrument is paid.

§ 47-3108. Payable on demand or at definite time

1. States that it is payable on demand or at sight, or otherwise indicates that it is payable at the will of the holder; or

B. A promise or order is "payable at a definite time" if it is payable on elapse of a definite period of time after sight or acceptance or at a fixed date or dates or at a time or times readily ascertainable at the time the promise or order is issued, subject to rights of:

4. Extension to a further definite time at the option of the maker or acceptor or automatically upon or after a specified act or event.

C. If an instrument, payable at a fixed date, is also payable upon demand made before the fixed date, the instrument is payable on demand until the fixed date and, if demand for payment is not made before that date, becomes payable at a definite time on the fixed date.

§ 47-3109. Payable to bearer or to order

1. States that it is payable to bearer or to the order of bearer or otherwise indicates that the person in possession of the promise or order is entitled to payment;

3. States that it is payable to or to the order of cash or otherwise indicates that it is not payable to an identified person.

B. A promise or order that is not payable to bearer is payable to order if it is payable:

A promise or order that is payable to order is payable to the identified person.

C. An instrument payable to bearer may become payable to an identified person if it is specially indorsed pursuant to section 47-3205, subsection A. An instrument payable to an identified person may become payable to bearer if it is indorsed in blank pursuant to section 47-3205, subsection B.

§ 47-3110. Identification of person to whom instrument is payable

A. The person to whom an instrument is initially payable is determined by the intent of the person, whether or not authorized, signing as, or in the name or behalf of, the issuer of the instrument. The instrument is payable to the person intended by the signer even if that person is identified in the instrument by a name or other identification that is not that of the intended person. If more than one person signs in the name or behalf of the issuer of an instrument and all the signers do not intend the same person as payee, the instrument is payable to any person intended by one or more of the signers.

B. If the signature of the issuer of an instrument is made by automated means, such as a check-writing machine, the payee of the instrument is determined by the intent of the person who supplied the name or identification of the payee, whether or not authorized to do so.

C. A person to whom an instrument is payable may be identified in any way, including by name, identifying number, office or account number. For the purpose of determining the holder of an instrument, the following rules apply:

1. If an instrument is payable to an account and the account is identified only by number, the instrument is payable to the person to whom the account is payable. If an instrument is payable to an account identified by number and by the name of a person, the instrument is payable to the named person, whether or not that person is the owner of the account identified by number.

(a) A trust, an estate or a person described as trustee or representative of a trust or estate, the instrument is payable to the trustee, the representative or a successor of either, whether or not the beneficiary or estate is also named;

(b) A person described as agent or similar representative of a named or identified person, the instrument is payable to the represented person, the representative or a successor of the representative;

(c) A fund or organization that is not a legal entity, the instrument is payable to a representative of the members of the fund or organization; or

(d) An office or to a person described as holding an office, the instrument is payable to the named person, the incumbent of the office or a successor to the incumbent.

D. If an instrument is payable to two or more persons alternatively, it is payable to any of them and may be negotiated, discharged or enforced by any or all of them in possession of the instrument. If an instrument is payable to two or more persons not alternatively, it is payable to all of them and may be negotiated, discharged or enforced only by all of them. If an instrument payable to two or more persons is ambiguous as to whether it is payable to the persons alternatively, the instrument is payable to the persons alternatively.

§ 47-3111. Place of payment

Except as otherwise provided for items in chapter 4 of this title, an instrument is payable at the place of payment stated in the instrument. If no place of payment is stated, an instrument is payable at the address of the drawee or maker stated in the instrument. If no address is stated, the place of payment is the place of business of the drawee or maker. If a drawee or maker has more than one place of business, the place of payment is any place of business of the drawee or maker chosen by the person entitled to enforce the instrument. If the drawee or maker has no place of business, the place of payment is the residence of the drawee or maker.

§ 47-3112. Interest

2. Interest on an interest-bearing instrument is payable from the date of the instrument.

B. Interest may be stated in an instrument as a fixed or variable amount of money or it may be expressed as a fixed or variable rate or rates. The amount or rate of interest may be stated or described in the instrument in any manner and may require reference to information not contained in the instrument. If an instrument provides for interest, but the amount of interest payable cannot be ascertained from the description, interest is payable at the judgment rate in effect at the place of payment of the instrument and at the time interest first accrues.

§ 47-3113. Date of instrument

A. An instrument may be antedated or postdated. The date stated determines the time of payment if the instrument is payable at a fixed period after date. Except as provided in section 47-4401, subsection C, an instrument payable on demand is not payable before the date of the instrument.

B. If an instrument is undated, its date is the date of its issue or, in the case of an unissued instrument, the date it first comes into possession of a holder.

§ 47-3114. Contradictory terms of instrument

If an instrument contains contradictory terms, typewritten terms prevail over printed terms, handwritten terms prevail over both, and words prevail over numbers.

§ 47-3115. Incomplete instrument

A. "Incomplete instrument" means a signed writing, whether or not issued by the signer, the contents of which show at the time of signing that it is incomplete but that the signer intended it to be completed by the addition of words or numbers.

B. Subject to subsection C of this section, if an incomplete instrument is an instrument under section 47-3104, it may be enforced according to its terms if it is not completed, or according to its terms as augmented by completion. If an incomplete instrument is not an instrument under section 47-3104, but, after completion, the requirements of section 47-3104 are met, the instrument may be enforced according to its terms as augmented by completion.

C. If words or numbers are added to an incomplete instrument without authority of the signer, there is an alteration of the incomplete instrument under section 47-3407.

D. The burden of establishing that words or numbers were added to an incomplete instrument without authority of the signer is on the person asserting the lack of authority.

§ 47-3116. Joint and several liability; contribution

A. Except as otherwise provided in the instrument, two or more persons who have the same liability on an instrument as makers, drawers, acceptors, indorsers who indorse as joint payees, or anomalous indorsers are jointly and severally liable in the capacity in which they sign.

B. Except as provided in section 47-3419, subsection E or by agreement of the affected parties, a party having joint and several liability who pays the instrument is entitled to receive from any party having the same joint and several liability contribution in accordance with applicable law.

C. Discharge of one party having joint and several liability by a person entitled to enforce the instrument does not affect the right under subsection B of this section of a party having the same joint and several liability to receive contribution from the party discharged.

§ 47-3117. Other agreements affecting instrument

Subject to applicable law regarding exclusion of proof of contemporaneous or previous agreements, the obligation of a party to an instrument to pay the instrument may be modified, supplemented or nullified by a separate agreement of the obligor and a person entitled to enforce the instrument, if the instrument is issued or the obligation is incurred in reliance on the agreement or as part of the same transaction giving rise to the agreement. To the extent an obligation is modified, supplemented or nullified by an agreement under this section, the agreement is a defense to the obligation.

§ 47-3118. Statute of limitations

A. Except as provided in subsection E, an action to enforce the obligation of a party to pay a note payable at a definite time must be commenced within six years after the due date or dates stated in the note or, if a due date is accelerated, within six years after the accelerated due date.

B. Except as provided in subsection D or E, if demand for payment is made to the maker of a note payable on demand, an action to enforce the obligation of a party to pay the note must be commenced within six years after the demand. If no demand for payment is made to the maker, an action to enforce the note is barred if neither principal nor interest on the note has been paid for a continuous period of ten years.

C. Except as provided in subsection D, an action to enforce the obligation of a party to an unaccepted draft to pay the draft must be commenced within three years after dishonor of the draft or ten years after the date of the draft, whichever period expires first.

D. An action to enforce the obligation of the acceptor of a certified check or the issuer of a teller's check, cashier's check or traveler's check must be commenced within three years after demand for payment is made to the acceptor or issuer, as the case may be.

E. An action to enforce the obligation of a party to a certificate of deposit to pay the instrument must be commenced within six years after demand for payment is made to the maker, but if the instrument states a due date and the maker is not required to pay before that date, the six year period begins when a demand for payment is in effect and the due date has passed.

F. An action to enforce the obligation of a party to pay an accepted draft, other than a certified check, must be commenced:

1. Within six years after the due date or dates stated in the draft or acceptance if the obligation of the acceptor is payable at a definite time; or

2. Within six years after the date of the acceptance if the obligation of the acceptor is payable on demand.

G. Unless governed by other law regarding claims for indemnity or contribution, the following actions must be commenced within three years after the cause of action accrues:

1. An action for conversion of an instrument, for money had and received, or like action based on conversion;

3. An action to enforce an obligation, duty or right arising under this chapter and not governed by this section.

§ 47-3119. Notice of right to defend action

In an action for breach of an obligation for which a third person is answerable over pursuant to this chapter or chapter 4 of this title, the defendant may give the third person written notice of the litigation, and the person notified may then give similar notice to any other person who is answerable over. If the notice states that the person notified may come in and defend and that failure to do so will bind the person notified in an action later brought by the person giving the notice as to any determination of fact common to the two litigations, the person notified is so bound unless after seasonable receipt of the notice the person notified does come in and defend.

ARTICLE 2. NEGOTIATION, TRANSFER AND INDORSEMENT

§ 47-3201. Negotiation

A. "Negotiation" means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder.

B. Except for negotiation by a remitter, if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of possession alone.

§ 47-3202. Negotiation subject to rescission

1. From an infant, a corporation exceeding its powers or a person without capacity;

B. To the extent permitted by other law, negotiation may be rescinded or may be subject to other remedies, but those remedies may not be asserted against a subsequent holder in due course or a person paying the instrument in good faith and without knowledge of facts that are a basis for rescission or other remedy.

§ 47-3203. Transfer of instrument; rights acquired by transfer

A. An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument.

B. Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course, but the transferee cannot acquire rights of a holder in due course by a transfer, directly or indirectly, from a holder in due course if the transferee engaged in fraud or illegality affecting the instrument.

C. Unless otherwise agreed, if an instrument is transferred for value and the transferee does not become a holder because of lack of indorsement by the transferor, the transferee has a specifically enforceable right to the unqualified indorsement of the transferor, but negotiation of the instrument does not occur until the indorsement is made.

D. If a transferor purports to transfer less than the entire instrument, negotiation of the instrument does not occur. The transferee obtains no rights under this chapter and has only the rights of a partial assignee.

§ 47-3204. Indorsement

A. "Indorsement" means a signature, other than that of a signer as maker, drawer or acceptor, that alone or accompanied by other words is made on an instrument for the purpose of negotiating the instrument, restricting payment of the instrument or incurring the indorser's liability on the instrument, but regardless of the intent of the signer, a signature and its accompanying words is an indorsement unless the accompanying words, terms of the instrument, place of the signature or other circumstances unambiguously indicate that the signature was made for a purpose other than indorsement. For the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is a part of the instrument.

C. For the purpose of determining whether the transferee of an instrument is a holder, an indorsement that transfers a security interest in the instrument is effective as an unqualified indorsement of the instrument.

D. If an instrument is payable to a holder under a name that is not the name of the holder, indorsement may be made by the holder in the name stated in the instrument or in the holder's name, or both, but signature in both names may be required by a person paying or taking the instrument for value or collection.

§ 47-3205. Special indorsement; blank indorsement; anomalous indorsement

A. If an indorsement is made by the holder of an instrument, whether payable to an identified person or payable to bearer, and the indorsement identifies a person to whom it makes the instrument payable, it is a "special indorsement". When specially indorsed, an instrument becomes payable to the identified person and may be negotiated only by the indorsement of that person. The principles stated in section 47-3110 apply to special indorsements.

B. If an indorsement is made by the holder of an instrument and it is not a special indorsement, it is a "blank indorsement". When indorsed in blank, an instrument becomes payable to bearer and may be negotiated by transfer of possession alone until specially indorsed.

C. The holder may convert a blank indorsement that consists only of a signature into a special indorsement by writing, above the signature of the indorser, words identifying the person to whom the instrument is made payable.

D. "Anomalous indorsement" means an indorsement made by a person who is not the holder of the instrument. An anomalous indorsement does not affect the manner in which the instrument may be negotiated.

§ 47-3206. Restrictive indorsement

A. An indorsement limiting payment to a particular person or otherwise prohibiting further transfer or negotiation of the instrument is not effective to prevent further transfer or negotiation of the instrument.

B. An indorsement stating a condition to the right of the indorsee to receive payment does not affect the right of the indorsee to enforce the instrument. A person paying the instrument or taking it for value or collection may disregard the condition, and the rights and liabilities of that person are not affected by whether the condition has been fulfilled.

C. If an instrument bears an indorsement described in section 47-4201, subsection B or in blank or to a particular bank using the words "for deposit", "for collection" or other words indicating a purpose of having the instrument collected by a bank for the indorser or for a particular account, the following rules apply:

1. A person, other than a bank, who purchases the instrument when so indorsed converts the instrument unless the amount paid for the instrument is received by the indorser or applied consistently with the indorsement.

2. A depositary bank that purchases the instrument or takes it for collection when so indorsed converts the instrument unless the amount paid by the bank with respect to the instrument is received by the indorser or applied consistently with the indorsement.

3. A payor bank that is also the depositary bank or that takes the instrument for immediate payment over the counter from a person other than a collecting bank converts the instrument unless the proceeds of the instrument are received by the indorser or applied consistently with the indorsement.

4. Except as otherwise provided in paragraph 3 of this subsection, a payor bank or intermediary bank may disregard the indorsement and is not liable if the proceeds of the instrument are not received by the indorser or applied consistently with the indorsement.

D. Except for an indorsement covered by subsection C of this section, if an instrument bears an indorsement using words to the effect that payment is to be made to the indorsee as agent, trustee or other fiduciary for the benefit of the indorser or another person, the following rules apply:

1. Unless there is notice of breach of fiduciary duty as provided in section 47-3307, a person who purchases the instrument from the indorsee or takes the instrument from the indorsee for collection or payment may pay the proceeds of payment or the value given for the instrument to the indorsee without regard to whether the indorsee violates a fiduciary duty to the indorser.

2. A subsequent transferee of the instrument or person who pays the instrument is neither given notice nor otherwise affected by the restriction in the indorsement unless the transferee or payor knows that the fiduciary dealt with the instrument or its proceeds in breach of fiduciary duty.

E. The presence on an instrument of an indorsement to which this section applies does not prevent a purchaser of the instrument from becoming a holder in due course of the instrument unless the purchaser is a converter under subsection C of this section or has notice or knowledge of breach of fiduciary duty as stated in subsection D of this section.

F. In an action to enforce the obligation of a party to pay the instrument, the obligor has a defense if payment would violate an indorsement to which this section applies and the payment is not permitted by this section.

§ 47-3207. Reacquisition

Reacquisition of an instrument occurs if it is transferred to a former holder, by negotiation or otherwise. A former holder who reacquires the instrument may cancel indorsements made after the reacquirer first became a holder of the instrument. If the cancellation causes the instrument to be payable to the reacquirer or to bearer, the reacquirer may negotiate the instrument. An indorser whose indorsement is canceled is discharged, and the discharge is effective against any subsequent holder.

ARTICLE 3. ENFORCEMENT OF INSTRUMENTS

§ 47-3301. Person entitled to enforce instrument

"Person entitled to enforce" an instrument means the holder of the instrument, a nonholder in possession of the instrument who has the rights of a holder or a person not in possession of the instrument who is entitled to enforce the instrument pursuant to section 47-3309 or section 47-3418, subsection D. A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

§ 47-3302. Holder in due course

A. Subject to subsection C of this section and section 47-3106, subsection D, "holder in due course" means the holder of an instrument if:

1. The instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity; and

(c) Without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series;

(d) Without notice that the instrument contains an unauthorized signature or has been altered;

(e) Without notice of any claim to the instrument described in section 47-3306; and

(f) Without notice that any party has a defense or claim in recoupment described in section 47-3305, subsection A.

B. Notice of discharge of a party, other than discharge in an insolvency proceeding, is not notice of a defense under subsection A of this section, but discharge is effective against a person who became a holder in due course with notice of the discharge. Public filing or recording of a document does not of itself constitute notice of a defense, claim in recoupment or claim to the instrument.

C. Except to the extent a transferor or predecessor in interest has rights as a holder in due course, a person does not acquire rights of a holder in due course of an instrument taken:

1. By legal process or by purchase in an execution, bankruptcy or creditor's sale or similar proceeding;

2. By purchase as part of a bulk transaction not in ordinary course of business of the transferor; or

D. If, under section 47-3303, subsection A, paragraph 1, the promise of performance that is the consideration for an instrument has been partially performed, the holder may assert rights as a holder in due course of the instrument only to the fraction of the amount payable under the instrument equal to the value of the partial performance divided by the value of the promised performance.

E. If the person entitled to enforce an instrument has only a security interest in the instrument and the person obliged to pay the instrument has a defense, claim in recoupment or claim to the instrument that may be asserted against the person who granted the security interest, the person entitled to enforce the instrument may assert rights as a holder in due course only to an amount payable under the instrument which, at the time of enforcement of the instrument, does not exceed the amount of the unpaid obligation secured.

F. To be effective, notice must be received at a time and in a manner that gives a reasonable opportunity to act on it.

G. This section is subject to any law limiting status as a holder in due course in particular classes of transactions.

§ 47-3303. Value and consideration

1. The instrument is issued or transferred for a promise of performance, to the extent the promise has been performed;

2. The transferee acquires a security interest or other lien in the instrument other than a lien obtained by judicial proceeding;

3. The instrument is issued or transferred as payment of, or as security for, an antecedent claim against any person, whether or not the claim is due;

4. The instrument is issued or transferred in exchange for a negotiable instrument; or

5. The instrument is issued or transferred in exchange for the incurring of an irrevocable obligation to a third party by the person taking the instrument.

B. "Consideration" means any consideration sufficient to support a simple contract. The drawer or maker of an instrument has a defense if the instrument is issued without consideration. If an instrument is issued for a promise of performance, the issuer has a defense to the extent performance of the promise is due and the promise has not been performed. If an instrument is issued for value as stated in subsection A, the instrument is also issued for consideration.

§ 47-3304. Overdue instrument

A. An instrument payable on demand becomes overdue at the earliest of the following times:

3. If the instrument is not a check, when the instrument has been outstanding for a period of time after its date which is unreasonably long under the circumstances of the particular case in light of the nature of the instrument and usage of the trade.

B. With respect to an instrument payable at a definite time the following rules apply:

1. If the principal is payable in installments and a due date has not been accelerated, the instrument becomes overdue upon default under the instrument for nonpayment of an installment, and the instrument remains overdue until the default is cured.

2. If the principal is not payable in installments and the due date has not been accelerated, the instrument becomes overdue on the day after the due date.

3. If a due date with respect to principal has been accelerated, the instrument becomes overdue on the day after the accelerated due date.

C. Unless the due date of principal has been accelerated, an instrument does not become overdue if there is default in payment of interest but no default in payment of principal.

§ 47-3305. Defenses and claims in recoupment

A. Except as stated in subsection B of this section, the right to enforce the obligation of a party to pay an instrument is subject to the following:

(b) Duress, lack of legal capacity or illegality of the transaction which, under other law, nullifies the obligation of the obligor;

(c) Fraud that induced the obligor to sign the instrument with neither knowledge nor reasonable opportunity to learn of its character or its essential terms; or

2. A defense of the obligor stated in another section of this chapter or a defense of the obligor that would be available if the person entitled to enforce the instrument were enforcing a right to payment under a simple contract; and

3. A claim in recoupment of the obligor against the original payee of the instrument if the claim arose from the transaction that gave rise to the instrument, but the claim of the obligor may be asserted against a transferee of the instrument only to reduce the amount owing on the instrument at the time the action is brought.

B. The right of a holder in due course to enforce the obligation of a party to pay the instrument is subject to defenses of the obligor stated in subsection A, paragraph 1 of this section but is not subject to defenses of the obligor stated in subsection A, paragraph 2 of this section or claims in recoupment stated in subsection A, paragraph 3 of this section against a person other than the holder.

C. Except as stated in subsection D of this section, in an action to enforce the obligation of a party to pay the instrument, the obligor may not assert against the person entitled to enforce the instrument a defense, claim in recoupment or claim to the instrument (section 47-3306) of another person, but the other person's claim to the instrument may be asserted by the obligor if the other person is joined in the action and personally asserts the claim against the person entitled to enforce the instrument. An obligor is not obliged to pay the instrument if the person seeking enforcement of the instrument does not have rights of a holder in due course and the obligor proves that the instrument is a lost or stolen instrument.

D. In an action to enforce the obligation of an accommodation party to pay an instrument, the accommodation party may assert against the person entitled to enforce the instrument any defense or claim in recoupment under subsection A of this section that the accommodated party could assert against the person entitled to enforce the instrument, except the defenses of discharge in insolvency proceedings, infancy and lack of legal capacity.

§ 47-3306. Claims to an instrument

A person taking an instrument, other than a person having rights of a holder in due course, is subject to a claim of a property or possessory right in the instrument or its proceeds, including a claim to rescind a negotiation and to recover the instrument or its proceeds. A person having rights of a holder in due course takes free of the claim to the instrument.

§ 47-3307. Notice of breach of fiduciary duty

1. "Fiduciary" means an agent, trustee, partner, corporate officer or director or other representative owing a fiduciary duty with respect to an instrument.

2. "Represented person" means the principal, beneficiary, partnership, corporation or other person to whom the duty stated in paragraph 1 of this subsection is owed.

B. If an instrument is taken from a fiduciary for payment or collection or for value, the taker has knowledge of the fiduciary status of the fiduciary and the represented person makes a claim to the instrument or its proceeds on the basis that the transaction of the fiduciary is a breach of fiduciary duty, the following rules apply:

1. Notice of breach of fiduciary duty by the fiduciary is notice of the claim of the represented person.

2. In the case of an instrument payable to the represented person or the fiduciary as such, the taker has notice of the breach of fiduciary duty if the instrument is:

(a) Taken in payment of or as security for a debt known by the taker to be the personal debt of the fiduciary;

(b) Taken in a transaction known by the taker to be for the personal benefit of the fiduciary; or

3. If an instrument is issued by the represented person or the fiduciary as such, and made payable to the fiduciary personally, the taker does not have notice of the breach of fiduciary duty unless the taker knows of the breach of fiduciary duty.

4. If an instrument is issued by the represented person or the fiduciary as such, to the taker as payee, the taker has notice of the breach of fiduciary duty if the instrument is:

(a) Taken in payment of or as security for a debt known by the taker to be the personal debt of the fiduciary;

(b) Taken in a transaction known by the taker to be for the personal benefit of the fiduciary; or

§ 47-3308. Proof of signatures and status as holder in due course

A. In an action with respect to an instrument, the authenticity of, and authority to make, each signature on the instrument is admitted unless specifically denied in the pleadings. If the validity of a signature is denied in the pleadings, the burden of establishing validity is on the person claiming validity, but the signature is presumed to be authentic and authorized unless the action is to enforce the liability of the purported signer and the signer is dead or incompetent at the time of trial of the issue of validity of the signature. If an action to enforce the instrument is brought against a person as the undisclosed principal of a person who signed the instrument as a party to the instrument, the plaintiff has the burden of establishing that the defendant is liable on the instrument as a represented person under section 47-3402, subsection A.

B. If the validity of signatures is admitted or proved and there is compliance with subsection A of this section, a plaintiff producing the instrument is entitled to payment if the plaintiff proves entitlement to enforce the instrument under section 47-3301, unless the defendant proves a defense or claim in recoupment. If a defense or claim in recoupment is proved, the right to payment of the plaintiff is subject to the defense or claim, except to the extent the plaintiff proves that the plaintiff has rights of a holder in due course which are not subject to the defense or claim.

§ 47-3309. Enforcement of lost, destroyed or stolen instrument

A. A person not in possession of an instrument is entitled to enforce the instrument if:

1. The person was in possession of the instrument and entitled to enforce it when loss of possession occurred;

2. The loss of possession was not the result of a transfer by the person or a lawful seizure; and

3. The person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process.

B. A person seeking enforcement of an instrument under subsection A of this section must prove the terms of the instrument and the person's right to enforce the instrument. If that proof is made, section 47-3308 applies to the case as if the person seeking enforcement had produced the instrument. The court may not enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument. Adequate protection may be provided by any reasonable means.

§ 47-3310. Effect of instrument on obligation for which taken

A. Unless otherwise agreed, if a certified check, cashier's check or teller's check is taken for an obligation, the obligation is discharged to the same extent discharge would result if an amount of money equal to the amount of the instrument were taken in payment of the obligation. Discharge of the obligation does not affect any liability that the obligor may have as an indorser of the instrument.

B. Unless otherwise agreed and except as provided in subsection A, if a note or an uncertified check is taken for an obligation, the obligation is suspended to the same extent the obligation would be discharged if an amount of money equal to the amount of the instrument were taken, and the following rules apply:

1. In the case of an uncertified check, suspension of the obligation continues until dishonor of the check or until it is paid or certified. Payment or certification of the check results in discharge of the obligation to the extent of the amount of the check.

2. In the case of a note, suspension of the obligation continues until dishonor of the note or until it is paid. Payment of the note results in discharge of the obligation to the extent of the payment.

3. Except as provided in paragraph 4, if the check or note is dishonored and the obligee of the obligation for which the instrument was taken is the person entitled to enforce the instrument, the obligee may enforce either the instrument or the obligation. In the case of an instrument of a third person which is negotiated to the obligee by the obligor, discharge of the obligor on the instrument also discharges the obligation.

4. If the person entitled to enforce the instrument taken for an obligation is a person other than the obligee, the obligee may not enforce the obligation to the extent the obligation is suspended. If the obligee is the person entitled to enforce the instrument but no longer has possession of it because it was lost, stolen or destroyed, the obligation may not be enforced to the extent of the amount payable on the instrument, and to that extent the obligee's rights against the obligor are limited to enforcement of the instrument.

C. If an instrument other than one described in subsection A or B is taken for an obligation, the effect is:

1. That stated in subsection A if the instrument is one on which a bank is liable as maker or acceptor; or

§ 47-3311. Accord and satisfaction by use of instrument

A. If a person against whom a claim is asserted proves that the person in good faith tendered an instrument to the claimant as full satisfaction of the claim, the amount of the claim was unliquidated or subject to a bona fide dispute and the claimant obtained payment of the instrument, subsections B and C apply.

B. Unless subsection C applies, the claim is discharged if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim.

C. Subject to subsection D, a claim is not discharged under subsection B if either of the following applies:

(a) Within a reasonable time before the tender, the claimant sent a conspicuous statement to the person against whom the claim is asserted that communications concerning disputed debts, including an instrument tendered as full satisfaction of a debt, are to be sent to a designated person, office or place; and

(b) The instrument or accompanying communication was not received by that designated person, office or place.

2. The claimant, whether or not an organization, proves that within ninety days after payment of the instrument, the claimant tendered repayment of the amount of the instrument to the person against whom the claim is asserted. This paragraph does not apply if the claimant is an organization that sent a statement complying with paragraph 1, subdivision (a).

D. A claim is discharged if the person against whom the claim is asserted proves that within a reasonable time before collection of the instrument was initiated, the claimant, or an agent of the claimant having direct responsibility with respect to the disputed obligation, knew that the instrument was tendered in full satisfaction of the claim.

ARTICLE 4. LIABILITY OF PARTIES

§ 47-3401. Signature

2. The person is represented by an agent or representative who signed the instrument and the signature is binding on the represented person under section 47-3402.

2. By the use of any name, including a trade or assumed name, or by a word, mark or symbol executed or adopted by a person with present intention to authenticate a writing.

§ 47-3402. Signature by representative

A. If a person acting, or purporting to act, as a representative signs an instrument by signing either the name of the represented person or the name of the signer, the represented person is bound by the signature to the same extent the represented person would be bound if the signature were on a simple contract. If the represented person is bound, the signature of the representative is the "authorized signature of the represented person" and the represented person is liable on the instrument, whether or not identified in the instrument.

B. If a representative signs the name of the representative to an instrument and the signature is an authorized signature of the represented person, the following rules apply:

1. If the form of the signature shows unambiguously that the signature is made on behalf of the represented person who is identified in the instrument, the representative is not liable on the instrument.

2. Subject to subsection C, if the form of the signature does not show unambiguously that the signature is made in a representative capacity or the represented person is not identified in the instrument, the representative is liable on the instrument to a holder in due course that took the instrument without notice that the representative was not intended to be liable on the instrument. With respect to any other person, the representative is liable on the instrument unless the representative proves that the original parties did not intend the representative to be liable on the instrument.

C. If a representative signs the name of the representative as drawer of a check without indication of the representative status and the check is payable from an account of the represented person who is identified on the check, the signer is not liable on the check if the signature is an authorized signature of the represented person.

§ 47-3403. Unauthorized signature

A. Unless otherwise provided in this chapter or chapter 4 of this title, an unauthorized signature is ineffective except as the signature of the unauthorized signer in favor of a person who in good faith pays the instrument or takes it for value. An unauthorized signature may be ratified for all purposes of this chapter.

B. If the signature of more than one person is required to constitute the authorized signature of an organization, the signature of the organization is unauthorized if one of the required signatures is lacking.

C. The civil or criminal liability of a person who makes an unauthorized signature is not affected by any provision of this chapter which makes the unauthorized signature effective for the purposes of this chapter.

§ 47-3404. Impostors; fictitious payees

A. If an impostor, by use of the mails or otherwise, induces the issuer of an instrument to issue the instrument to the impostor, or to a person acting in concert with the impostor, by impersonating the payee of the instrument or a person authorized to act for the payee, an indorsement of the instrument by any person in the name of the payee is effective as the indorsement of the payee in favor of a person who, in good faith, pays the instrument or takes it for value or for collection.

B. If a person whose intent determines to whom an instrument is payable (section 47-3110, subsection A or B) does not intend the person identified as payee to have any interest in the instrument or the person identified as payee of an instrument is a fictitious person, the following rules apply until the instrument is negotiated by special indorsement:

2. An indorsement by any person in the name of the payee stated in the instrument is effective as the indorsement of the payee in favor of a person who, in good faith, pays the instrument or takes it for value or for collection.

C. Under subsection A or B of this section, an indorsement is made in the name of a payee if:

2. The instrument, whether or not indorsed, is deposited in a depositary bank to an account in a name substantially similar to that of the payee.

D. With respect to an instrument to which subsection A or B of this section applies, if a person paying the instrument or taking it for value or for collection fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss resulting from payment of the instrument, the person bearing the loss may recover from the person failing to exercise ordinary care to the extent the failure to exercise ordinary care contributed to the loss.

§ 47-3405. Employer's responsibility for fraudulent indorsement by employee

1. "Employee" includes an independent contractor and employee of an independent contractor retained by the employer.

(a) In the case of an instrument payable to the employer, a forged indorsement purporting to be that of the employer; or

(b) In the case of an instrument with respect to which the employer is the issuer, a forged indorsement purporting to be that of the person identified as payee.

(b) Process instruments received by the employer for bookkeeping purposes, for deposit to an account or for other disposition;

(d) Supply information determining the names or addresses of payees of instruments to be issued in the name of the employer;

(e) Control the disposition of instruments to be issued in the name of the employer; or

Responsibility does not include authority that merely allows an employee to have access to instruments or blank or incomplete instrument forms that are being stored or transported or are part of incoming or outgoing mail, or similar access.

B. For the purpose of determining the rights and liabilities of a person who, in good faith, pays an instrument or takes it for value or for collection, if an employer entrusted an employee with responsibility with respect to the instrument and the employee or a person acting in concert with the employee makes a fraudulent indorsement of the instrument, the indorsement is effective as the indorsement of the person to whom the instrument is payable if it is made in the name of that person. If the person paying the instrument or taking it for value or for collection fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss resulting from the fraud, the person bearing the loss may recover from the person failing to exercise ordinary care to the extent the failure to exercise ordinary care contributed to the loss.

C. Under subsection B, an indorsement is made in the name of the person to whom an instrument is payable if:

2. The instrument, whether or not indorsed, is deposited in a depositary bank to an account in a name substantially similar to the name of that person.

§ 47-3406. Negligence contributing to forged signature or alteration of instrument

A. A person whose failure to exercise ordinary care substantially contributes to an alteration of an instrument or to the making of a forged signature on an instrument is precluded from asserting the alteration or the forgery against a person who, in good faith, pays the instrument or takes it for value or for collection.

B. Under subsection A, if the person asserting the preclusion fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss, the loss is allocated between the person precluded and the person asserting the preclusion according to the extent to which the failure of each to exercise ordinary care contributed to the loss.

C. Under subsection A, the burden of proving failure to exercise ordinary care is on the person asserting the preclusion. Under subsection B, the burden of proving failure to exercise ordinary care is on the person precluded.

§ 47-3407. Alteration

1. An unauthorized change in an instrument that purports to modify in any respect the obligation of a party; or

2. An unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party.

B. Except as provided in subsection C, an alteration fraudulently made discharges a party whose obligation is affected by the alteration unless that party assents or is precluded from asserting the alteration. No other alteration discharges a party, and the instrument may be enforced according to its original terms.

C. A payor bank or drawee paying a fraudulently altered instrument or a person taking it for value, in good faith and without notice of the alteration, may enforce rights with respect to the instrument:

2. In the case of an incomplete instrument altered by unauthorized completion, according to its terms as completed.

§ 47-3408. Drawee not liable on unaccepted draft

A check or other draft does not of itself operate as an assignment of funds in the hands of the drawee available for its payment, and the drawee is not liable on the instrument until the drawee accepts it.

§ 47-3409. Acceptance of draft; certified check

A. "Acceptance" means the drawee's signed agreement to pay a draft as presented. It must be written on the draft and may consist of the drawee's signature alone. Acceptance may be made at any time and becomes effective when notification pursuant to instructions is given or the accepted draft is delivered for the purpose of giving rights on the acceptance to any person.

B. A draft may be accepted although it has not been signed by the drawer, is otherwise incomplete, is overdue or has been dishonored.

C. If a draft is payable at a fixed period after sight and the acceptor fails to date the acceptance, the holder may complete the acceptance by supplying a date in good faith.

D. " Certified check" means a check accepted by the bank on which it is drawn. Acceptance may be made as stated in subsection A or by a writing on the check which indicates that the check is certified. The drawee of a check has no obligation to certify the check, and refusal to certify is not dishonor of the check.

§ 47-3410. Acceptance varying draft

A. If the terms of a drawee's acceptance vary from the terms of the draft as presented, the holder may refuse the acceptance and treat the draft as dishonored. In that case, the drawee may cancel the acceptance.

B. The terms of a draft are not varied by an acceptance to pay at a particular bank or place in the United States, unless the acceptance states that the draft is to be paid only at that bank or place.

C. If the holder assents to an acceptance varying the terms of a draft, the obligation of each drawer and indorser that does not expressly assent to the acceptance is discharged.

§ 47-3411. Refusal to pay cashier's checks, teller's checks and certified checks

A. In this section, "obligated bank" means the acceptor of a certified check or the issuer of a cashier's check or teller's check bought from the issuer.

B. If the obligated bank wrongfully refuses to pay a cashier's check or certified check, stops payment of a teller's check or refuses to pay a dishonored teller's check, the person asserting the right to enforce the check is entitled to compensation for expenses and loss of interest resulting from the nonpayment and may recover consequential damages if the obligated bank refuses to pay after receiving notice of particular circumstances giving rise to the damages.

C. Expenses or consequential damages under subsection B are not recoverable if the refusal of the obligated bank to pay occurs because:

2. The obligated bank asserts a claim or defense of the bank that it has reasonable grounds to believe is available against the person entitled to enforce the instrument;

3. The obligated bank has a reasonable doubt whether the person demanding payment is the person entitled to enforce the instrument; or

§ 47-3412. Obligation of issuer of note or cashier's check

The issuer of a note or cashier's check or other draft drawn on the drawer is obliged to pay the instrument:

1. According to its terms at the time it was issued or, if not issued, at the time it first came into possession of a holder; or

2. If the issuer signed an incomplete instrument, according to its terms when completed, to the extent stated in sections 47-3115 and 47-3407. The obligation is owed to a person entitled to enforce the instrument or to an indorser who paid the instrument under section 47-3415.

§ 47-3413. Obligation of acceptor

1. According to its terms at the time it was accepted, even though the acceptance states that the draft is payable "as originally drawn" or equivalent terms;

2. If the acceptance varies the terms of the draft, according to the terms of the draft as varied; or

3. If the acceptance is of a draft that is an incomplete instrument, according to its terms when completed, to the extent stated in sections 47-3115 and 47-3407. The obligation is owed to a person entitled to enforce the draft or to the drawer or an indorser who paid the draft under section 47-3414 or 47-3415.

B. If the certification of a check or other acceptance of a draft states the amount certified or accepted, the obligation of the acceptor is that amount. If the certification or acceptance does not state an amount, if the amount of the instrument is subsequently raised and if the instrument is then negotiated to a holder in due course, the obligation of the acceptor is the amount of the instrument at the time it was taken by the holder in due course.

§ 47-3414. Obligation of drawer

A. This section does not apply to cashier's checks or other drafts drawn on the drawer.

B. If an unaccepted draft is dishonored, the drawer is obliged to pay the draft according to its terms at the time it was issued or, if not issued, at the time it first came into possession of a holder, or if the drawer signed an incomplete instrument, according to its terms when completed, to the extent stated in sections 47-3115 and 47-3407. The obligation is owed to a person entitled to enforce the draft or to an indorser who paid the draft under section 47-3415.

C. If a draft is accepted by a bank, the drawer is discharged, regardless of when or by whom acceptance was obtained.

D. If a draft is accepted and the acceptor is not a bank, the obligation of the drawer to pay the draft if the draft is dishonored by the acceptor is the same as the obligation of an indorser under section 47-3415, subsections A and C.

E. If a draft states that it is drawn "without recourse" or otherwise disclaims liability of the drawer to pay the draft, the drawer is not liable under subsection B of this section to pay the draft if the draft is not a check. A disclaimer of the liability stated in subsection B of this section is not effective if the draft is a check.

F. If a check is not presented for payment or given to a depositary bank for collection within thirty days after its date, if the drawee suspends payments after expiration of the thirty day period without paying the check and, because of the suspension of payments, if the drawer is deprived of funds maintained with the drawee to cover payment of the check, the drawer to the extent deprived of funds may discharge its obligation to pay the check by assigning to the person entitled to enforce the check the rights of the drawer against the drawee with respect to the funds.

§ 47-3415. Obligation of indorser

A. Subject to subsections B, C, D and E of this section and to section 47-3419, subsection D, if an instrument is dishonored, an indorser is obliged to pay the amount due on the instrument according to the terms of the instrument at the time it was indorsed, or if the indorser indorsed an incomplete instrument, according to its terms when completed, to the extent stated in sections 47-3115 and 47-3407. The obligation of the indorser is owed to a person entitled to enforce the instrument or to a subsequent indorser who paid the instrument under this section.

B. If an indorsement states that it is made "without recourse" or otherwise disclaims liability of the indorser, the indorser is not liable under subsection A of this section to pay the instrument.

C. If notice of dishonor of an instrument is required by section 47-3503 and notice of dishonor complying with that section is not given to an indorser, the liability of the indorser under subsection A of this section is discharged.

D. If a draft is accepted by a bank after an indorsement is made, the liability of the indorser under subsection A of this section is discharged.

E. If an indorser of a check is liable under subsection A of this section and the check is not presented for payment, or given to a depositary bank for collection, within thirty days after the day the indorsement was made, the liability of the indorser under subsection A of this section is discharged.

§ 47-3416. Transfer warranties

A. A person who transfers an instrument for consideration warrants to the transferee and, if the transfer is by indorsement, to any subsequent transferee that:

4. The instrument is not subject to a defense or claim in recoupment of any party which can be asserted against the warrantor; and

5. The warrantor has no knowledge of any insolvency proceeding commenced with respect to the maker or acceptor or, in the case of an unaccepted draft, the drawer.

B. A person to whom the warranties under subsection A are made and who took the instrument in good faith may recover from the warrantor as damages for breach of warranty an amount equal to the loss suffered as a result of the breach, but not more than the amount of the instrument plus expenses and loss of interest incurred as a result of the breach.

C. The warranties stated in subsection A cannot be disclaimed with respect to checks. Unless notice of a claim for breach of warranty is given to the warrantor within thirty days after the claimant has reason to know of the breach and the identity of the warrantor, the liability of the warrantor under subsection B is discharged to the extent of any loss caused by the delay in giving notice of the claim.

D. A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach.

§ 47-3417. Presentment warranties

A. If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, the person obtaining payment or acceptance, at the time of presentment, and a previous transferor of the draft, at the time of transfer, warrant to the drawee making payment or accepting the draft in good faith that:

1. The warrantor is, or was, at the time the warrantor transferred the draft, a person entitled to enforce the draft or authorized to obtain payment or acceptance of the draft on behalf of a person entitled to enforce the draft;

3. The warrantor has no knowledge that the signature of the drawer of the draft is unauthorized.

B. A drawee making payment may recover from any warrantor damages for breach of warranty equal to the amount paid by the drawee less the amount the drawee received or is entitled to receive from the drawer because of the payment. In addition, the drawee is entitled to compensation for expenses and loss of interest resulting from the breach. The right of the drawee to recover damages under this subsection is not affected by any failure of the drawee to exercise ordinary care in making payment. If the drawee accepts the draft, breach of warranty is a defense to the obligation of the acceptor. If the acceptor makes payment with respect to the draft, the acceptor is entitled to recover from any warrantor for breach of warranty the amounts stated in this subsection.

C. If a drawee asserts a claim for breach of warranty under subsection A of this section based on an unauthorized indorsement of the draft or an alteration of the draft, the warrantor may defend by proving that the indorsement is effective under section 47-3404 or 47-3405 or the drawer is precluded under section 47-3406 or 47-4406 from asserting against the drawee the unauthorized indorsement or alteration.

D. If a dishonored draft is presented for payment to the drawer or an indorser or any other instrument is presented for payment to a party obliged to pay the instrument, and payment is received, the following rules apply:

1. The person obtaining payment and a prior transferor of the instrument warrant to the person making payment in good faith that the warrantor is, or was, at the time the warrantor transferred the instrument, a person entitled to enforce the instrument or authorized to obtain payment on behalf of a person entitled to enforce the instrument.

2. The person making payment may recover from any warrantor for breach of warranty an amount equal to the amount paid plus expenses and loss of interest resulting from the breach.

E. The warranties stated in subsections A and D of this section cannot be disclaimed with respect to checks. Unless notice of a claim for breach of warranty is given to the warrantor within thirty days after the claimant has reason to know of the breach and the identity of the warrantor, the liability of the warrantor under subsection B or D of this section is discharged to the extent of any loss caused by the delay in giving notice of the claim.

F. A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach.

§ 47-3418. Payment or acceptance by mistake

A. Except as provided in subsection C of this section, if the drawee of a draft pays or accepts the draft and the drawee acted on the mistaken belief that payment of the draft had not been stopped pursuant to section 47-4403 or the signature of the drawer of the draft was authorized, the drawee may recover the amount of the draft from the person to whom or for whose benefit payment was made or, in the case of acceptance, may revoke the acceptance. Rights of the drawee under this subsection are not affected by failure of the drawee to exercise ordinary care in paying or accepting the draft.

B. Except as provided in subsection C of this section, if an instrument has been paid or accepted by mistake and the case is not covered by subsection A of this section, the person paying or accepting may, to the extent permitted by the law governing mistake and restitution:

1. Recover the payment from the person to whom or for whose benefit payment was made; or

C. The remedies provided by subsection A or B of this section may not be asserted against a person who took the instrument in good faith and for value or who in good faith changed position in reliance on the payment or acceptance. This subsection does not limit remedies provided by section 47-3417 or 47-4407.

D. Notwithstanding section 47-4215, if an instrument is paid or accepted by mistake and the payor or acceptor recovers payment or revokes acceptance under subsection A or B of this section, the instrument is deemed not to have been paid or accepted and is treated as dishonored, and the person from whom payment is recovered has rights as a person entitled to enforce the dishonored instrument.

§ 47-3419. Instruments signed for accommodation

A. If an instrument is issued for value given for the benefit of a party to the instrument ("accommodated party") and another party to the instrument ("accommodation party") signs the instrument for the purpose of incurring liability on the instrument without being a direct beneficiary of the value given for the instrument, the instrument is signed by the accommodation party "for accommodation".

B. An accommodation party may sign the instrument as maker, drawer, acceptor or indorser and, subject to subsection D of this section, is obliged to pay the instrument in the capacity in which the accommodation party signs. The obligation of an accommodation party may be enforced notwithstanding any statute of frauds and whether or not the accommodation party receives consideration for the accommodation.

C. A person signing an instrument is presumed to be an accommodation party and there is notice that the instrument is signed for accommodation if the signature is an anomalous indorsement or is accompanied by words indicating that the signer is acting as surety or guarantor with respect to the obligation of another party to the instrument. Except as provided in section 47-3605, the obligation of an accommodation party to pay the instrument is not affected by the fact that the person enforcing the obligation had notice when the instrument was taken by that person that the accommodation party signed the instrument for accommodation.

D. If the signature of a party to an instrument is accompanied by words indicating unambiguously that the party is guaranteeing collection rather than payment of the obligation of another party to the instrument, the signer is obliged to pay the amount due on the instrument to a person entitled to enforce the instrument only if:

4. It is otherwise apparent that payment cannot be obtained from the other party.

E. An accommodation party who pays the instrument is entitled to reimbursement from the accommodated party and is entitled to enforce the instrument against the accommodated party. An accommodated party who pays the instrument has no right of recourse against, and is not entitled to contribution from, an accommodation party.

§ 47-3420. Conversion of instrument

A. The law applicable to conversion of personal property applies to instruments. An instrument is also converted if it is taken by transfer, other than a negotiation, from a person not entitled to enforce the instrument or a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment. An action for conversion of an instrument may not be brought by:

2. A payee or indorsee who did not receive delivery of the instrument either directly or through delivery to an agent or a co-payee.

B. In an action under subsection A, the measure of liability is presumed to be the amount payable on the instrument, but recovery may not exceed the amount of the plaintiff's interest in the instrument.

C. A representative, other than a depositary bank, who has in good faith dealt with an instrument or its proceeds on behalf of one who was not the person entitled to enforce the instrument is not liable in conversion to that person beyond the amount of any proceeds that it has not paid out.

ARTICLE 5. DISHONOR

§ 47-3501. Presentment

A. "Presentment" means a demand made by or on behalf of a person entitled to enforce an instrument:

1. To pay the instrument made to the drawee or a party obliged to pay the instrument or, in the case of a note or accepted draft payable at a bank, to the bank; or

B. The following rules are subject to chapter 4 of this title, agreement of the parties, and clearing house rules and the like:

(a) May be made at the place of payment of the instrument and must be made at the place of payment if the instrument is payable at a bank in the United States;

(b) May be made by any commercially reasonable means, including an oral, written or electronic communication;

(d) Is effective if made to any one of two or more makers, acceptors, drawees or other payors.

2. Upon demand of the person to whom presentment is made, the person making presentment must:

(b) Give reasonable identification and, if presentment is made on behalf of another person, reasonable evidence of authority to do so; and

3. Without dishonoring the instrument, the party to whom presentment is made may:

(b) Refuse payment or acceptance for failure of the presentment to comply with the terms of the instrument, an agreement of the parties or other applicable law or rule.

4. The party to whom presentment is made may treat presentment as occurring on the next business day after the day of presentment if the party to whom presentment is made has established a cutoff hour not earlier than 2:00 p.m. for the receipt and processing of instruments presented for payment or acceptance and presentment is made after the cut-off hour.

§ 47-3502. Dishonor

1. If the note is payable on demand, the note is dishonored if presentment is duly made to the maker and the note is not paid on the day of presentment.

2. If the note is not payable on demand and is payable at or through a bank or the terms of the note require presentment, the note is dishonored if presentment is duly made and the note is not paid on the day it becomes payable or the day of presentment, whichever is later.

3. If the note is not payable on demand and paragraph 2 of this subsection does not apply, the note is dishonored if it is not paid on the day it becomes payable.

B. Dishonor of an unaccepted draft other than a documentary draft is governed by the following rules:

1. If a check is duly presented for payment to the payor bank otherwise than for immediate payment over the counter, the check is dishonored if the payor bank makes timely return of the check or sends timely notice of dishonor or nonpayment under section 47-4301 or 47-4302 or becomes accountable for the amount of the check under section 47-4302.

2. If a draft is payable on demand and paragraph 1 of this subsection does not apply, the draft is dishonored if presentment for payment is duly made to the drawee and the draft is not paid on the day of presentment.

3. If a draft is payable on a date stated in the draft, the draft is dishonored if:

(a) Presentment for payment is duly made to the drawee and payment is not made on the day the draft becomes payable or the day of presentment, whichever is later; or

(b) Presentment for acceptance is duly made before the day the draft becomes payable and the draft is not accepted on the day of presentment.

4. If a draft is payable on elapse of a period of time after sight or acceptance, the draft is dishonored if presentment for acceptance is duly made and the draft is not accepted on the day of presentment.

C. Dishonor of an unaccepted documentary draft occurs according to the rules stated in subsection B, paragraphs 2, 3 and 4 of this section, except that payment or acceptance may be delayed without dishonor until no later than the close of the third business day of the drawee following the day on which payment or acceptance is required by those paragraphs.

1. If the draft is payable on demand, the draft is dishonored if presentment for payment is duly made to the acceptor and the draft is not paid on the day of presentment.

2. If the draft is not payable on demand, the draft is dishonored if presentment for payment is duly made to the acceptor and payment is not made on the day it becomes payable or the day of presentment, whichever is later.

E. In any case in which presentment is otherwise required for dishonor under this section and presentment is excused under section 47-3504, dishonor occurs without presentment if the instrument is not duly accepted or paid.

F. If a draft is dishonored because timely acceptance of the draft was not made and the person entitled to demand acceptance consents to a late acceptance, from the time of acceptance the draft is treated as never having been dishonored.

§ 47-3503. Notice of dishonor

A. The obligation of an indorser stated in section 47-3415, subsection A and the obligation of a drawer stated in section 47-3414, subsection D may not be enforced unless:

1. The indorser or drawer is given notice of dishonor of the instrument complying with this section; or

B. Notice of dishonor may be given by any person, may be given by any commercially reasonable means, including an oral, written or electronic communication, and is sufficient if it reasonably identifies the instrument and indicates that the instrument has been dishonored or has not been paid or accepted. Return of an instrument given to a bank for collection is sufficient notice of dishonor.

C. Subject to section 47-3504, subsection C, with respect to an instrument taken for collection by a collecting bank, notice of dishonor must be given by the bank before midnight of the next banking day following the banking day on which the bank receives notice of dishonor of the instrument or by any other person within thirty days following the day on which the person receives notice of dishonor. With respect to any other instrument, notice of dishonor must be given within thirty days following the day on which dishonor occurs.

§ 47-3504. Excused presentment and notice of dishonor

1. The person entitled to present the instrument cannot with reasonable diligence make presentment;

2. The maker or acceptor has repudiated an obligation to pay the instrument or is dead or in insolvency proceedings;

3. By the terms of the instrument presentment is not necessary to enforce the obligation of indorsers or the drawer;

4. The drawer or indorser whose obligation is being enforced has waived presentment or otherwise has no reason to expect or right to require that the instrument be paid or accepted; or

5. The drawer instructed the drawee not to pay or accept the draft or the drawee was not obligated to the drawer to pay the draft.

B. Notice of dishonor is excused if by the terms of the instrument notice of dishonor is not necessary to enforce the obligation of a party to pay the instrument or the party whose obligation is being enforced waived notice of dishonor. A waiver of presentment is also a waiver of notice of dishonor.

C. Delay in giving notice of dishonor is excused if the delay was caused by circumstances beyond the control of the person giving the notice and the person giving the notice exercised reasonable diligence after the cause of the delay ceased to operate.

§ 47-3505. Evidence of dishonor

A. The following are admissible as evidence and create a presumption of dishonor and of any notice of dishonor stated:

1. A document regular in form as provided in subsection B which purports to be a protest;

2. A purported stamp or writing of the drawee, payor bank or presenting bank on or accompanying the instrument stating that acceptance or payment has been refused unless reasons for the refusal are stated and the reasons are not consistent with dishonor; and

3. A book or record of the drawee, payor bank or collecting bank, kept in the usual course of business which shows dishonor, even if there is no evidence of who made the entry.

B. A protest is a certificate of dishonor made by a United States consul or vice consul, a notary public or other person authorized to administer oaths by the law of the place where dishonor occurs. It may be made upon information satisfactory to that person. The protest must identify the instrument and certify either that presentment has been made or, if not made, the reason why it was not made, and that the instrument has been dishonored by nonacceptance or nonpayment. The protest may also certify that notice of dishonor has been given to some or all parties.

ARTICLE 6. DISCHARGE AND PAYMENT

§ 47-3601. Discharge and effect of discharge

A. The obligation of a party to pay the instrument is discharged as stated in this chapter or by an act or agreement with the party which would discharge an obligation to pay money under a simple contract.

B. Discharge of the obligation of a party is not effective against a person acquiring rights of a holder in due course of the instrument without notice of the discharge.

§ 47-3602. Payment

A. Subject to subsection B of this section, an instrument is paid to the extent payment is made by or on behalf of a party obliged to pay the instrument and to a person entitled to enforce the instrument. To the exten t of the payment, the obligation of the party obliged to pay the instrument is discharged even though payment is made with knowledge of a claim to the instrument under section 47-3306 by another person.

B. The obligation of a party to pay the instrument is not discharged under subsection A of this section if:

1. A claim to the instrument under section 47-3306 is enforceable against the party receiving payment and:

(a) Payment is made with knowledge by the payor that payment is prohibited by injunction or similar process of a court of competent jurisdiction; or

(b) In the case of an instrument other than a cashier's check, teller's check or certified check, the party making payment accepted, from the person having a claim to the instrument, indemnity against loss resulting from refusal to pay the person entitled to enforce the instrument; or

2. The person making payment knows that the instrument is a stolen instrument and pays a person it knows is in wrongful possession of the instrument.

§ 47-3603. Tender of payment

A. If tender of payment of an obligation to pay an instrument is made to a person entitled to enforce the instrument, the effect of tender is governed by principles of law applicable to tender of payment under a simple contract.

B. If tender of payment of an obligation to pay an instrument is made to a person entitled to enforce the instrument and the tender is refused, there is discharge, to the extent of the amount of the tender, of the obligation of an indorser or accommodation party having a right of recourse with respect to the obligation to which the tender relates.

C. If tender of payment of an amount due on an instrument is made to a person entitled to enforce the instrument, the obligation of the obligor to pay interest after the due date on the amount tendered is discharged. If presentment is required with respect to an instrument and the obligor is able and ready to pay on the due date at every place of payment stated in the instrument, the obligor is deemed to have made tender of payment on the due date to the person entitled to enforce the instrument.

§ 47-3604. Discharge by cancellation or renunciation

A. A person entitled to enforce an instrument, with or without consideration, may discharge the obligation of a party to pay the instrument:

1. By an intentional voluntary act, such as surrender of the instrument to the party, destruction, mutilation or cancellation of the instrument, cancellation or striking out of the party's signature or the addition of words to the instrument indicating discharge; or

2. By agreeing not to sue or otherwise renouncing rights against the party by a signed writing.

B. Cancellation or striking out of an indorsement pursuant to subsection A does not affect the status and rights of a party derived from the indorsement.

§ 47-3605. Discharge of indorsers and accommodation parties

A. In this section, the term "indorser" includes a drawer having the obligation described in section 47-3414, subsection D.

B. Discharge, under section 47-3604, of the obligation of a party to pay an instrument does not discharge the obligation of an indorser or accommodation party having a right of recourse against the discharged party.

C. If a person entitled to enforce an instrument agrees, with or without consideration, to an extension of the due date of the obligation of a party to pay the instrument, the extension discharges an indorser or accommodation party having a right of recourse against the party whose obligation is extended to the extent the indorser or accommodation party proves that the extension caused loss to the indorser or accommodation party with respect to the right of recourse.

D. If a person entitled to enforce an instrument agrees, with or without consideration, to a material modification of the obligation of a party other than an extension of the due date, the modification discharges the obligation of an indorser or accommodation party having a right of recourse against the person whose obligation is modified to the extent the modification causes loss to the indorser or accommodation party with respect to the right of recourse. The loss suffered by the indorser or accommodation party as a result of the modification is equal to the amount of the right of recourse unless the person enforcing the instrument proves that no loss was caused by the modification or that the loss caused by the modification was an amount less than the amount of the right of recourse.

E. If the obligation of a party to pay an instrument is secured by an interest in collateral and a person entitled to enforce the instrument impairs the value of the interest in collateral, the obligation of an indorser or accommodation party having a right of recourse against the obligor is discharged to the extent of the impairment. The value of an interest in collateral is impaired to the extent the value of the interest is reduced to an amount less than the amount of the right of recourse of the party asserting discharge or the reduction in value of the interest causes an increase in the amount by which the amount of the right of recourse exceeds the value of the interest. The burden of proving impairment is on the party asserting discharge.

F. If the obligation of a party is secured by an interest in collateral not provided by an accommodation party and a person entitled to enforce the instrument impairs the value of the interest in collateral, the obligation of any party who is jointly and severally liable with respect to the secured obligation is discharged to the extent the impairment causes the party asserting discharge to pay more than that party would have been obliged to pay, taking into account rights of contribution, if impairment had not occurred. If the party asserting discharge is an accommodation party not entitled to discharge under subsection E of this section, the party is deemed to have a right to contribution based on joint and several liability rather than a right to reimbursement. The burden of proving impairment is on the party asserting discharge.

G. Under subsection E or F of this section, impairing value of an interest in collateral includes:

1. Failure to obtain or maintain perfection or recordation of the interest in collateral;

3. Failure to perform a duty to preserve the value of collateral owed, under chapter 9 of this title or other law, to a debtor or surety or other person secondarily liable; or

H. An accommodation party is not discharged under subsection C, D or E of this section unless the person entitled to enforce the instrument knows of the accommodation or has notice under section 47-3419, subsection C that the instrument was signed for accommodation.

1. The party asserting discharge consents to the event or conduct that is the basis of the discharge; or

2. The instrument or a separate agreement of the party provides for waiver of discharge under this section either specifically or by general language indicating that parties waive defenses based on suretyship or impairment of collateral.

CHAPTER 4. BANK DEPOSITS AND COLLECTIONS

ARTICLE 1. GENERAL PROVISIONS AND DEFINITIONS

ARTICLE 2. COLLECTION OF ITEMS; DEPOSITARY AND COLLECTING BANKS

ARTICLE 3. COLLECTION OF ITEMS; PAYOR BANKS

ARTICLE 4. RELATIONSHIP BETWEEN PAYOR BANK AND ITS CUSTOMER

ARTICLE 5. COLLECTION OF DOCUMENTARY DRAFTS

ARTICLE 1. GENERAL PROVISIONS AND DEFINITIONS

§ 47-4101. Short title

This chapter may be cited as the uniform commercial code -- bank deposits and collections.

§ 47-4102. Applicability

A. To the extent that items within this chapter are also within chapters 3 and 8 of this title, they are subject to those chapters. If there is conflict, this chapter governs chapter 3 of this title, but chapter 8 of this title governs this chapter.

B. The liability of a bank for action or non-action with respect to an item handled by it for purposes of presentment, payment or collection is governed by the law of the place where the bank is located. In the case of action or non-action by or at a branch or separate office of a bank, its liability is governed by the law of the place where the branch or separate office is located.

§ 47-4103. Variation by agreement; measure of damages; action constituting ordinary care

A. The effect of the provisions of this chapter may be varied by agreement, but the parties to the agreement cannot disclaim a bank's responsibility for its lack of good faith or failure to exercise ordinary care or limit the measure of damages for the lack or failure. However, the parties may determine by agreement the standards by which the bank's responsibility is to be measured if those standards are not manifestly unreasonable.

B. Federal reserve regulations and operating circulars, clearing-house rules, and the like have the effect of agreements under subsection A, whether or not specifically assented to by all parties interested in items handled.

C. Action or non-action approved by this chapter or pursuant to federal reserve regulations or operating circulars is the exercise of ordinary care and, in the absence of special instructions, action or non-action consistent with clearing-house rules and the like or with a general banking usage not disapproved by this chapter, is prima facie the exercise of ordinary care.

D. The specification or approval of certain procedures by this chapter is not disapproval of other procedures that may be reasonable under the circumstances.

E. The measure of damages for failure to exercise ordinary care in handling an item is the amount of the item reduced by an amount that could not have been realized by the exercise of ordinary care. If there is also bad faith it includes any other damages the party suffered as a proximate consequence.

§ 47-4104. Definitions and index of definitions

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.

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 47-8102) or instructions for uncertificated securities (section 47-8102) 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 47-3104 or an item, other than an instrument, that is an order.

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 chapter 4A of this title or a credit or debit card slip.

10. "Midnight deadline" with respect to a bank is midnight on its next banking day following the banking day on which it receives the relevant item or notice or from which the time for taking action commences to run, whichever is later.

11. "Settle" means to pay in cash, by clearing-house settlement, in a charge or credit or by remittance, or otherwise as agreed. A settlement may be either provisional or final.

12. "Suspends payments" with respect to a bank means that it has been closed by order of the supervisory authorities, that a public officer has been appointed to take it over or that it ceases or refuses to make payments in the ordinary course of business.

B. Other definitions applying to this chapter and the sections in which they appear are:

D. In addition chapter 1 of this title contains general definitions and principles of construction and interpretation applicable throughout this chapter.

§ 47-4105. "Bank"; "depositary bank"; "payor bank"; "intermediary bank"; "collecting bank"; "presenting bank"

1. "Bank" means a person engaged in the business of banking, including a savings bank, savings and loan association, credit union or trust company.

2. "Depositary bank" means the first bank to take an item even though it is also the payor bank unless the item is presented for immediate payment over the counter.

4. "Intermediary bank" means a bank to which an item is transferred in course of collection except the depositary or payor bank.

5. "Collecting bank" means a bank handling the item for collection except the payor bank.

§ 47-4106. Payable through or payable at bank; collecting bank

A. If an item states that it is "payable through" a bank identified in the item:

1. The item designates the bank as a collecting bank and does not by itself authorize the bank to pay the item; and

B. If an item states that it is "payable at" a bank identified in the item, the item is equivalent to a draft drawn on the bank.

C. If a draft names a nonbank drawee and it is unclear whether a bank named in the draft is a co-drawee or a collecting bank, the bank is a collecting bank.

§ 47-4107. Separate office of bank

A branch or separate office of a bank is a separate bank for the purpose of computing the time within which and determining the place at or to which action may be taken or notices or orders must be given under this chapter and chapter 3 of this title, except that service on the bank as garnishee shall be made pursuant to section 12-1577. The receipt of any notice or order by, or the knowledge of, one branch or separate office of a bank is not actual or constructive notice to or knowledge of any other branch or separate office of the same bank and does not impair the right of such other branch or separate office to be a holder in due course of an item.

§ 47-4108. Time of receipt of items

A. For the purpose of allowing time to process items, prove balances and make the necessary entries on its books to determine its position for the day, a bank may fix an afternoon hour of two p.m. or later as a cutoff hour for the handling of money and items and the making of entries on its books.

B. An item or deposit of money received on any day after a cutoff hour so fixed or after the close of the banking day may be treated as being received at the opening of the next banking day.

§ 47-4109. Delays

A. Unless otherwise instructed, a collecting bank in a good faith effort to secure payment of a specific item drawn on a payor other than a bank, and with or without the approval of any person involved, may waive, modify or extend time limits imposed or permitted by this title for a period not exceeding two additional banking days without discharge of drawers or indorsers or liability to its transferor or a prior party.

B. Delay by a collecting bank or payor bank beyond time limits prescribed or permitted by this title or by instructions is excused if:

1. The delay is caused by interruption of communication or computer facilities, suspension of payments by another bank, war, emergency conditions, failure of equipment or other circumstances beyond the control of the bank; and

§ 47-4110. Electronic presentment

A. "Agreement for electronic presentment" means an agreement, clearing-house rule or federal reserve regulation or operating circular providing that presentment of an item may be made by transmission of an image of an item or information describing the item ("presentment notice") rather than delivery of the item itself. The agreement may provide for procedures governing retention, presentment, payment, dishonor and other matters concerning items subject to the agreement.

B. Presentment of an item pursuant to an agreement for presentment is made when the presentment notice is received.

C. If presentment is made by presentment notice, a reference to "item" or "check" in this chapter means the presentment notice unless the context otherwise indicates.

§ 47-4111. Statute of limitations

An action to enforce an obligation, duty or right arising under this chapter must be commenced within three years after the cause of action accrues.

ARTICLE 2. COLLECTION OF ITEMS; DEPOSITARY AND COLLECTING BANKS

§ 47-4201. Status of collecting bank as agent and provisional status of credits; applicability of chapter; item indorsed "pay any bank"

A. Unless a contrary intent clearly appears before the time that a settlement given by a collecting bank for an item is or becomes final, the bank, with respect to the item, is an agent or subagent of the owner of the item and any settlement given for the item is provisional. This provision applies regardless of the form of indorsement or lack of indorsement and even though credit given for the item is subject to immediate withdrawal as of right or is in fact withdrawn; but the continuance of ownership of an item by its owner and any rights of the owner to proceeds of the item are subject to rights of a collecting bank, such as those resulting from outstanding advances on the item and rights of recoupment or setoff. If an item is handled by banks for purposes of presentment, payment, collection or return, the relevant provisions of this chapter apply even though action of the parties clearly establishes that a particular bank has purchased the item and is the owner of it.

B. After an item has been indorsed with the words "pay any bank" or the like, only a bank may acquire the rights of a holder until the item has been:

§ 47-4202. Responsibility for collection or return; when action timely

2. Sending notice of dishonor or non-payment or returning an item other than a documentary draft to the bank's transferor after learning that the item has not been paid or accepted, as the case may be;

4. Notifying its transferor of any loss or delay in transit within a reasonable time after discovery thereof.

B. A collecting bank exercises ordinary care under subsection A by taking proper action before its midnight deadline following