Article 1 Sections
3. The effect of provisions of this Act may be varied by agreement, except as otherwise provided in this Act except that the obligations of good faith, diligence, reasonableness and care prescribed by this Act may not be disclaimed by agreement but the parties may by agreement determine the standards by which performance of such obligations is to be measured if such standards are not manifestly unreasonable.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
(a) [The Uniform Commercial Code] must be liberally construed and applied to promote its underlying purposes and policies, which are: (1) to simplify, clarify, and modernize the law governing commercial transactions; (2) to permit the continued expansion of commercial practices through custom, usage, and agreement of the parties; and (3) to make uniform the law among the various jurisdictions.
(b) Unless displaced by the particular provisions of [the Uniform Commercial Code], the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating or invalidating cause supplement its provisions.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
* * *
(b) Unless displaced by the particular provisions of this Act, 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.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-105 Territorial application of rules; Parties' Power to Choose Applicable Law (post-new Article 9)
***
(2) 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:
***
Law governing perfection, the effect of perfection or nonperfection and the priority of security interests and agricultural liens. Sections 9-301 through 9-307.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
(b) Subject to definitions contained in other articles of the Uniform Commercial Code that apply to particular articles or parts thereof:
* * *
(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 pre-existing contract for sale. Only a buyer that takes possession of the goods or has a right to recover the goods from the seller under Article 2 may be a buyer in ordinary course of business. A person that acquires goods in a transfer in bulk or as security for or in total or partial satisfaction of a money debt is not a buyer in ordinary course of business. [Emphasis added.]
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-201(b)(20)
(b) Subject to definitions contained in other articles of the Uniform Commercial Code that apply to particular articles or parts thereof:
* * *
(20) "Good faith," except as otherwise provided in Article 5, means honesty in fact and the observance of reasonable commercial standards of fair dealing.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-201(b)(21)
(b) Subject to definitions contained in other articles of the Uniform Commercial Code that apply to particular articles or parts thereof:
* * *
(21) "Holder" means:
(A) the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession;
(B) the person in possession of a negotiable tangible document of title if the goods are deliverable either to bearer or to the order of the person in possession; or
(C) the person in control of a negotiable electric document of title.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-201(b)(24)
(b) Subject to definitions contained in other articles of the Uniform Commercial Code that apply to particular articles or parts thereof:
* * *
(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.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-201(b)(25)
(b) Subject to definitions contained in other articles of the Uniform Commercial Code that apply to particular articles or parts thereof:
* * *
(25) "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.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-201(b)(29)
(b) Subject to definitions contained in other articles of the Uniform Commercial Code that apply to particular articles or parts thereof:
* * *
(29) "Purchase" mean 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.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-201(b)(30)
(b) Subject to definitions contained in other articles of the Uniform Commercial Code that apply to particular articles or parts thereof:
* * *
(30) "Purchaser" means a person that takes by purchase.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-201(b)(35)
(b) Subject to definitions contained in other articles of the Uniform Commercial Code that apply to particular articles or parts thereof:
* * *
(35) "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 2-401 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 2-505, 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 2-401) is limited in effect to a reservation of a "security interest". Whether a transaction in the form of a lease creates a "security interest" is determined pursuant to Section 1-203.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-201(44)
(44) "Value". Except as otherwise provided with respect to negotiable instruments and bank collections (Sections 3-303 , 4-208 and 4-209 ) 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 pre-existing claim; or
(c) by accepting delivery pursuant to a pre-existing contract for purchase ; or
(d) generally, in return for any consideration sufficient to support a simple contract.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-202
(a) Subject to subsection (f), a person has "notice " of a fact if the person:
(1) has actual knowledge of it; or
(2) has received a notice or notification of it; or
(3) from all the facts and circumstances known to him at the time in question he has reason to know that it exists.
(b) "Knowledge" means actual knowledge. "Knows" has a corresponding meaning.
(c) "Discover" or "learn" or words of similar import refer to knowledge rather than reason to know.
(d) A person "notifies" or "gives" a notice or notification to another person by taking such steps as may reasonably required to inform the other person in ordinary course, whether or not the other person actually comes to know of it.
(e) Subject to subsection (f), a person "receives" a notice or notification when:
(1) it comes to that person's attention; or
(2) it is duly delivered in a form reasonable under the circumstances at the place of business through which the contract was made or at another location held out by that person as the place for receipt of such communications.
(f) Notice, knowledge, or notice or notification received by an organization is effective for a particular transaction from the time it is brought to the attention of the individual conducting that transaction and, in any event, from the time it would have been brought to the individual's attention if the organization had exercised due diligence. An organization exercises due diligence if it maintains reasonable routines for communicating significant information to the person conducting the transaction and there is reasonable compliance with the routines. Due diligence does not require an individual acting for an organization to communicate information unless the communication is part of the individual's regular duties or the individual has reason to know of the transaction and that the transaction would be materially affected by the information.
The time and circumstances under which a notice or notification may cease to be effective are not determined by this Act.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-203 Lease Distinguished From Security Interest
(a) Whether a transaction creates a lease or security interest is determined by the facts of each case.
(b) A transaction in the form of a lease creates a security interest if the consideration 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:
(1) The original term of the lease is equal to or greater than the remaining economic life of the goods;
(2) The lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become the owner of the goods;
(3) The lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement; or
(4) The lessee has an option to become the owner of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement.
(b) A transaction in the form of a lease does not create a security interest merely because:
(1) The present value of the consideration the lessee is obligated to pay the lessor for the right to possession and use of the goods is substantially equal to or is greater than the fair market value of the goods at the time the lease is entered into;
(2) The lessee assumes risk of loss of the goods;
(3) The lessee agrees to pay, with respect to the goods, taxes, insurance, filing, recording or registration fees, or service or maintenance costs ;
(4) The lessee has an option to renew the lease or to become the owner of the goods;
(5) The lessee has an option to renew the lease for a fixed rent that is equal to or greater than the reasonably predictable fair market rent for the use of the goods for the term of the renewal at the time the option is to be performed; or
(6) The lessee has an option to become the owner of the goods for a fixed price that is equal to or greater than the reasonably predictable fair market value of the goods at the time the option is to be performed.
(d) Additional consideration is nominal if it is less than the lessee's reasonably predictable cost of performing under the lease agreement if the option is not exercised. Additional consideration is not nominal if:
(1) when the option to renew the lease is granted to the lessee, the rent is stated to be the fair market rent for the use of the goods for the term of the renewal determined at the time the option is to be performed; or
(2) when the option to become the owner of the goods is granted to the lessee, the price is stated to be the fair market value of the goods determined at the time the option is to be performed.
(e) The "remaining economic life of the goods" and "reasonably predictable" fair market rent, fair market value, or cost of performing under the lease agreement must be determined with reference to the facts and circumstances at the time the transaction is entered into.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-203(c)
(c) A transaction in the form of a lease does not create a security interest merely because:
a. 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 greater than the fair market value of the goods at the time the lease is entered into;
b. the lessee assumes risk of loss as to the goods;
c. the lessee agrees to pay, with respect to the goods, taxes, insurance, filing, recording, or registration fees, or service or maintenance costs;
d. the lessee has an option to renew the lease or to become the owner of the goods;
e. 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 goods for the term of renewal at the time the option is to be performed; or
f. 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.”
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-204
Except as otherwise provided in Articles 3, 4 [and] 5, [and 6], of this Act a person gives value for rights if the person acquires them
(1) in return for a binding commitment to extend credit or for the extension of immediately available credit whether or not drawn upon and whether or not a charge back is provided for in the event of difficulties in collection; or
(2) as security for or in total or partial satisfaction of a pre-existing claim; or
(3) by accepting delivery pursuant to a pre-existing contract for purchase; or
(4) in return for any consideration sufficient to support a simple contract.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-204(2)
Except as otherwise provided in Articles 3, 4 [and] 5, [and 6], of this Act a person gives value for rights if the person acquires them
* * *
(2) as security for or in total or partial satisfaction of a pre-existing claim;
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-208. 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.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-301(c) (Superceded in 2008)
* * *
(c) Except as otherwise provided in this section:
(1) an agreement by parties to a domestic transaction that any or all of their rights and obligations are to be determined by the law of this State or of another State is effective, whether or not the transaction bears a relation to the State designated; and
(2) an agreement by parties to an international transaction that any or all of their rights and obligations are to be determined by the law of this State or of another State or country is effective, whether or not the transaction bears a relation to the State or country designated.
* * *
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-301(c)(2) (Superceded in 2008)
(c)(2) an agreement by parties to an international transaction that any or all of their rights and obligations are to be determined by the law of this State or another State or country is effective, whether or not the transaction bears a relation to the State or country designated.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-301(d) (Superceded in 2008)
* * *
(d) In the absence of an agreement effective under subsection (c), and except as provided in subsections (e) and (g), the rights and obligations of the parties are determined by the law that would be selected by application of this State's conflict of laws principles.
* * *
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-301(g)(8) (Superceded in 2008)
(g) To the extent that [the Uniform Commercial Code] governs a transaction, if one of the following provisions of the [Uniform Commercial Code] specifies the applicable law, that provision governs and a contrary agreement is effective only to the extent permitted by the law so specified:
(8) Sections 9-301 through 9-307.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-301 (As amended in 2008 to revert to former 1-105)
(a) Except as otherwise provided in this section, when a
transaction bears a reasonable relation to this state and also to
another state or nation the parties may agree that the law either
of this state or of such other state or nation shall govern their
rights and duties.
(b) In the absence of an agreement effective under subsection
(a), and except as provided in subsection (c), [the Uniform
Commercial Code] applies to transactions bearing an appropriate
relation to this state.
(c) If one of the following provisions of [the Uniform
Commercial Code] specifies the applicable law, that provision
governs and a contrary agreement is effective only to the extent
permitted by the law so specified:
(1) Section 2-402;
(2) Sections 2A-105 and 2A-106;
(3) Section 4-102;
(4) Section 4A-507;
(5) Section 5-116;
[(6) Section 6-103;]
(7) Section 8-110;
(8) Sections 9-301 through 9-307.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-301(c)(8)
(c) If one of the following provisions of the [Uniform Commercial Code] specifies the applicable law, that provision governs and a contrary agreement is effective only to the extent permitted by the law so specified:
* * *
(8) Sections 9-301 through 9-307.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-302(b)
* * *
(b) The obligations of good faith, diligence, reasonableness, and care prescribed by the Uniform Commercial Code may not be disclaimed by agreement. The parties, by agreement, may determine the standards by which the performance of those obligations is to be measured if the standards are not manifestly unreasonable. Whenever the Uniform Commercial Code requires an action to be taken in a reasonable time, a time that is not manifestly unreasonable may be fixed by agreement.
* * *
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-304
Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
1-309
A term providing that one party or that party's successor in interest may accelerate payment or performance or require collateral or additional collateral "at will" or when the party "deems itself insecure," or words of similar import, means that the party has the power to do so only if that party in good faith believes that the prospect of payment or performance is impaired. The burden of establishing lack of good faith is on the party against which the power has been exercised.
Copyright by ALI and NCCUSL. Reproduced with the permission of the Permanent Editorial Board for the UCC. All rights reserved.
2009-02-01 update