/* Perhaps the most important of the changes made by the UCC was that in secured lending. Article 9 (written by bank attorneys for banks) simplified the making of loans and the taking of liens in anything. Nevertheless it is also fraught with traps. */

ARTICLE 9

SECURED TRANSACTIONS; SALES OF ACCOUNTS AND CHATTEL PAPER

PART 1. SHORT TITLE, APPLICABILITY AND DEFINITIONS

Section

9-101. Short Title.

9-102. Policy and Subject Matter of Article.

9-103. Perfection of Security Interest in Multiple State

Transactions.

9-104. Transactions Excluded From Article.

9-105. Definitions and Index of Definitions.

9-106. Definitions: "Account". "General Intangibles".

9-107. Definitions: "Purchase Money Security Interest".

9-l08. When After-Acquired Collateral Not Security for

Antecedent Debt.

9-109. Classification of Goods: "Consumer Goods"; "Equipment";

"Farm Products"; Inventory"

9-110. Sufficiency of Description.

9-111. Applicability of Bulk Transfer Laws.

9-112. Where Collateral Is Not Owned by Debtor.

9-113. Security Interests Arising Under Article on Sales or

Under Article on Leases.

9-114. Consignment

PART 2. VALIDITY OF SECURITY AGREEMENT AND RIGHTS OF PARTIES THERETO

9-201. General Validity of Security Agreement

9-202. Title to Collateral Immaterial.

9-203. Attachment and Enforceability of Security Interest;

Proceeds; Formal Requisites.

9-204 After-Acquired Property; Future Advances.

9-205. Use or Disposition of Collateral Without Accounting

Permissible.

9-206. Agreement Not to Assent Defenses Against Assignee; Modification of Sales Warranties Where Security Agreement Exists.

9-207. Rights and Duties When Collateral Is in Secured Party's

Possession.

9-208. Request for Statement of Account or List of

Collateral.

PART 3. RIGHTS OF THIRD PARTIES; PERFECTED AND UNPERFECTED

SECURITY INTERESTS; RULES OF PRIORITY

9-301. Persons Who Take Priority Over Unperfected Security

Interests; Rights of "Lien Creditor".

9-302. When Filing Is Required to Perfect Security Interest;

Security Interests to Which Filing Provisions of This Article Do

Not Apply.

9-303. When Security Interest Is Perfected; Continuity of

Perfection.

9-304. Perfection of Security Interest in Instruments, Documents, and Goods Covered by Documents; Perfection by Permissive Filing; Temporary Perfection Without Filing or Transfer of Possession.

9-305. When Possession by Secured Party Perfects Security

Interest Without Filing.

9-306. "Proceeds"; Secured Party's Rights on Disposition of Collateral.

9-307. Protection of Buyers of Goods.

9-308. Purchase of Chattel Paper and Instruments.

9-309. Protection of Purchasers of Instruments, Documents, and

Securities.

9-310. Priority of Certain Liens Arising by Operation by Law.

9-311. Alienability of Debtor's Rights: Judicial Process.

9-312. Priorities Among Conflicting Security Interests in the

Same Collateral.

9-313. Priority of Security Interests in Fixtures.

9-314. Accessions.

9-315. Priority When Goods Are Commingled or Processed.

9-316. Priority Subject to Subordination.

9-317. Secured party Not Obligated on Contract of Debtor.

9-318. Defenses Against Assignee; Modification of Contract

After Notification of Assignment; Term Prohibiting Assignment

Ineffective; Identification and Proof of Assignment.

PART 4. FILING

9-401. Place of Filing; Erroneous Filing; Removal of Collateral.

9-402. Formal Requisites of Financing Statement; Amendments;

Mortgage as Financing Statement.

9-403. What Constitutes Filing; Duration of Filing; Effect of

Lapsed Filing; Duties of Filing Officer.

9-404. Termination Statement.

9-405. Assignment of Security Interest; Duties of Filing

Officer; Fees.

9-406. Release of Collateral; Duties of Filing Officer; Fees.

9-407. Information From Filing Officer.

9-408. Financing Statements Covering Consigned or Leased Goods.

PART 5. DEFAULT

9-501. Default; Procedure When Security Agreement Covers Both

Real and Personal Property.

9-502. Collection Rights of Secured Party.

9-503. Secured Party's Right to Take Possession After Default.

9-504. Secured Party's Right to Dispose of Collateral After

Default; Effect of Disposition.

9-505. Compulsory Disposition of Collateral; Acceptance of the

Collateral as Discharge of Obligation.

9-506. Debtor's Right to Redeem Collateral.

9-507. Secured Party's Liability for Failure to Comply With This

Part.

ARTICLE 9

SECURED TRANSACTIONS; SALES OF ACCOUNTS AND CHATTEL PAPER

PART 1

SHORT TITLE, APPLICABILITY AND DEFINITIONS

9-101. Short Title.

This Article shall be known and may be cited as Uniform

Commercial Code -- Secured Transactions.

9-102. Policy and Subject Matter of Article.

(1) Except as otherwise Provided in Section 9-104 on

excluded transactions, this Article applies

(a) to any transaction (regardless of its form) which is

intended to create a security interest in personal property or

fixtures including goods, documents, instruments, general

intangibles, chattel paper or accounts; and also

(b) to any sale of accounts or chattel paper.

(2) This Article applies to security interests created by

contract including pledge, assignment, chattel mortgage, chattel

trust, trust deed, factor's lien, equipment trust conditional

sale, trust receipt, other lien or title retention contract and

lease or consignment intended as security. This Article does

not apply to statutory liens except as provided in Section 9-310.

(3) The application of this Article to a security interest

in a secured obligation is not affected by the fact that the

obligation is itself secured by a transaction or interest to

which this Article does not apply.

9-103. Perfection of Security interest in Multiple State

Transactions.

(1) Documents, instruments and ordinary goods.

(a) This subsection applies to documents and instruments

and to goods other than those covered by a certificate of title

described in subsection (2), mobile goods described in subsection

(3), and minerals described in subsection (5).

(b) Except as otherwise provided in this subsection,

perfection and the effect of perfection or non-perfection of a

security interest in collateral are governed by the law of the

jurisdiction where the collateral is when the last event occurs

on which is based the assertion that the security interest is

perfected or unperfected.

(c) If the parties to a transaction creating a purchase

money security interest in goods in one jurisdiction understand

at the time that the security interest attaches that the goods

will be kept in another jurisdiction, then the law of the other

jurisdiction governs the perfection and the effect of perfection

or non-perfection of the security interest from the time it

attaches until thirty days after the debtor receives possession

of the goods and thereafter if the goods are taken to the other

jurisdiction before the end of the thirty-day period.

(d) When collateral is brought into and kept in this state

while subject to a security interest perfected under the law of

the jurisdiction from which the collateral was removed, the

security interest remains perfected, but if action is required by

part 3 of this Article to perfect the security interest,

(i) if the action is not taken before the expiration of the

period of perfection in the other jurisdiction or the end of four

months after the collateral is brought into this state, whichever

period first expires, the security interest becomes unperfected at the end of that period and is thereafter deemed to have been unperfected as against a person who became a purchaser after removal;

(ii) if the action is taken before the expiration of the

period specified in subparagraph (i), the security interest

continues perfected thereafter;

(iii) for the purpose of priority over a buyer of consumer

goods (subsection (2) of Section 9-307), the period of the effectiveness of a filing in the jurisdiction from which the collateral is removed is governed by the rules with respect to perfection in subparagraphs (i) and (ii).

(2) Certificate of title.

(a) This subsection applies to goods covered by a

certificate of title issued under a statute of this state or of

another jurisdiction under the law of which indication of a

security interest on the certificate is required as a condition

of perfection.

(b) Except as otherwise provided in this subsection,

perfection and the effect of perfection or non-perfection of the

security interest are governed by the law (including the conflict

of laws rules) of the jurisdiction issuing the certificate until

four months after the goods are removed from that jurisdiction

and thereafter until the goods are registered in another

jurisdiction, but in any event not beyond surrender of the

certificate. After the expiration of that period, the goods are

not covered by the certificate of title within the meaning of

this section.

(c) Except with respect to the rights of a buyer described

in the next paragraph, a security interest, perfected in another

jurisdiction otherwise than by notation on a certificate of

title, in goods brought into this state and thereafter covered by

a certificate of title issued by this state is subject to the

rules stated in paragraph (d) of subsection (1).

(d) If goods are brought into this state while a security

interest therein is perfected in any manner under the law of the

jurisdiction from which the goods are removed and a certificate

of title is issued by this state and the certificate does not

show that the goods are subject to the security interest or that

they may be subject to security interests not shown on the

certificate, the security interest is subordinate to the rights

of a buyer of the goods who is not in the business of selling

goods of that kind to the extent that he gives value and receives

delivery of the goods after issuance of the certificate and

without knowledge of the security interest.

(3) Accounts, general intangibles and mobile goods.

(a) This subsection applies to accounts (other than an

account described in subsection (5) on minerals) and general

intangibles (other than uncertificated securities) and to goods

which are mobile and which are of a type normally used In more

than one jurisdiction, such as motor vehicles, trailers, rolling

stock, airplanes, shipping containers, road building and

construction machinery and commercial harvesting machinery and

the like, if the goods are equipment or are inventory leased or

held for lease by the debtor to others, and are not covered by a

certificate of title described in subsection (2).

(b) The law (including the conflict of laws rules) of the

jurisdiction in which the debtor is located governs the

perfection and the effect of perfection or nonperfection of the

security interest.

(c) If, however, the debtor is located in a jurisdiction

which is not a part of the United States, and which does not

provide for perfection of the security interest by filing or

recording in that jurisdiction, the law of the jurisdiction in

the United States in which the debtor has its major executive

office in the United States governs the perfection and the effect

of perfection or non-perfection of the security interest through

filing. In the alternative, if the debtor is located in a

jurisdiction which is not a part of the United States or Canada and the collateral is accounts or general intangibles for money due or to become due, the security interest may be perfected by

notification to the account debtor. As used in this paragraph,

"United States" includes its territories and possessions and the

Commonwealth of Puerto Rico.

(d) A debtor shall be deemed located at his place of

business if he has one, at his chief executive office if he has

more than one place of business, otherwise at his residence. If,

however, the debtor is a foreign air carrier under the Federal

Aviation Act of 1958, as amended, it shall be deemed located at

the designated office of the agent upon whom service of process

may be made on behalf of the foreign air carrier.

(e) A security interest perfected under the law of the

jurisdiction of the location of the debtor is perfected until the

expiration of four months after a change of the debtor's location

to another jurisdiction, or until perfection would have ceased by

the law of the first jurisdiction, whichever period first

expires. Unless perfected in the new jurisdiction before the end

of that period, it becomes unperfected thereafter and is deemed

to have been unperfected as against a person who became a

purchaser after the change.

(4) Chattel paper.

The rules stated for goods in subsection (1) apply to

a possessory security interest in chattel paper. The rules stated

for accounts in subsection (3) apply to a non-possessory security

interest in chattel paper, but the security interest may not be perfected by notification to the account debtor.

(5) Minerals.

Perfection and the effect of perfection or non-perfection of

a security interest which is created by a debtor who has an

interest in minerals or the like (including oil and gas) before

extraction and which attaches thereto as extracted, or which

attaches to an account resulting from the sale thereof at the

wellhead or minehead are governed by the law (including the

conflict of laws rules) of the jurisdiction wherein the wellhead or minehead is located.

(6) Uncertificated securities.

The law (including the conflict of laws rules) of the

jurisdiction of organization of the issuer governs the perfection

and the effect of perfection or non-perfection of a security

interest in uncertificated securities.

9-104. Transactions Excluded From Article.

This Article does not apply

(a) to a security interest subject to any statute of the

United States, to the extent that such statute governs the rights

of panties to and third panties affected by transactions in

particular types of Property; or

(b) to a landlord's lien; or

(c) to a lien given by statute or other rule of law for services or materials except as provided in Section 9-310 on priority of such liens; or

(d) to a transfer of a claim for wages, salary or other

compensation of an employee; or

(e) to a transfer by a government or governmental subdivision or agency;

(f) or to a sale of accounts or chattel paper as part of a sale of the business out of which they arose, or an assignment of accounts or chattel paper which is for the purpose of collection only, or a transfer of a right to payment under a contract to an assignee who is also to do the performance under the contract or a transfer of a single account to an assignee in whole or partial satisfaction of a preexisting indebtedness; or

(g) to a transfer of an interest in or claim in or under

any policy of insurance, except as provided with respect to

proceeds (Section 9-306) and priorities in proceeds (Section 9-

312); or

(h) to a right represented by a judgment (other than a

judgment taken on a right to payment which was collateral); or

(i) to any right of set-off; or

(j) except to the extent that provision is made for

fixtures in Section 9-313, to the creation or transfer of an

interest in or lien on real estate, including a lease or rents

thereunder; or

(k) to a transfer in whole or in part of any claim arising

out of tort; or

(l) to a transfer of an interest in any deposit account

(subsection (1) of Section 9-105), except as provided with

respect to proceeds (Section 9-306) and priorities in proceeds

(Section 9-312).

9-105. Definitions and Index of Definitions.

(1) In this Article unless the context otherwise requires:

(a) "Account debtor" means the person who is obligated on an account, chattel paper or general intangible;

(b) "Chattel paper" means a writing or writings which

evidence both a monetary obligation and a security interest in or

a lease of specific goods, but a charter or other contract

involving the use or hire of a vessel is not chattel paper. When

a transaction is evidenced both by such a security agreement or a

lease and by an Instrument or a series of instruments, the group

of writings taken together constitutes chattel paper;

(c) "Collateral" means the property subject to a security

interest, and includes accounts and chattel paper which have been

sold;

(d) "Debtor" means the person who owes payment or other

performance of the obligation secured, whether or not he owns or

has rights in the collateral, and includes the seller of accounts

or chattel paper. Where the debtor and the owner of the

collateral are not the same person, the term "debtor" means the

owner of the collateral in any provision of the Article dealing

with the collateral, the obligor in any provision dealing with

the obligation, and may include both where the context so

requires.

(e) "Deposit account" means a demand, time, savings,

passbook or like account maintained with a bank, savings and loan

association, credit union or like organization, other than an

account evidenced by a certificate of deposit;

(f) "Document" means document of title as defined in the

general definitions of Article 1 (Section 1-201), and a receipt

of the kind described in subsection (2) of Section 7-201

(g) "Encumbrance" includes real estate mortgages and other

liens on real estate and all other rights in real estate that are

not ownership interests;

(h) "Goods" includes all things which are movable at the

time the security interest attaches or which are fixtures

(Section 9-313), but does not include money, documents,

instruments, accounts, chattel paper, general intangibles, or

minerals or the like (including oil and gas) before extraction.

Goods" also includes standing timber which is to be cut and

removed under a conveyance or contract for sale, the unborn young

of animals, and growing crops;

(i) "Instrument" means a negotiable instrument (defined in

Section 3-104), or a certificated security (defined in Section 8-

102) or any other writing which evidences a right to the payment

of money and is not itself a security agreement or lease and is

of a type which is in ordinary course of business transferred by

delivery with any necessary indorsement or assignment;

(j) "Mortgage" means a consensual interest created by a real estate mortgage, a trust deed on real estate, or the like;

(k) An advance is made "pursuant to commitment" if the

secured party has bound himself to make it, whether or not a

subsequent event of default or other event not within his

control has relieved or may relieve him from his obligation;

(l) "Security agreement" means an agreement which creates or provides for a security interest;

(m) "Secured party" means a lender, seller or other person

in whose favor there is a security interest, including a person

to whom accounts or chattel paper have been sold. When the

holders of obligations issued under an indenture of trust,

equipment trust agreement or the like are represented by a

trustee or other person, the representative is the secured party;

(n) "Transmitting utility" means any person primarily engaged in the railroad, street railway or trolley bus business, the electric or electronics communications transmission business, the transmission of goods by pipeline, or the transmission

or the production and transmission of electricity, steam, gas or

water, or the provision of sewer service.

(2) Other definitions applying to this Article and the

sections in which they appear are:

"Account". Section 9-106.

"Attach".Section 9-203.

"Construction mortgage". Section 9-313(1).

Consumer goods". Section 9-109(1).

"Equipment." Section 9-109(2).

"Farm products". Section 9-109(3).

"Fixture". Section 9-313(1).

"Fixture filing". Section 9-313(1).

"General intangibles" Section 9-106.

"Inventory" Section 9-109(4).

"Lien creditor". Section 9-301(3).

"Proceeds". Section 9-306(1).

"Purchase money security interest." Section 9-107.

"United States". Section 9-103.

(3) The following definitions in other Articles apply to

this Article:

"Check". Section 3-104.

"Contract for sale". Section 2-106.

"Holder in due course". Section 3-302.

"Note". Section 3-104.

"Sale". Section 2-106.

(4) In addition Article 1 contains general definitions and

principles of construction and interpretation applicable

throughout this Article.

9-106. Definitions: "Account"; "General intangibles".

"Account" means any right to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper, whether or not it has been earned by

performance. "General intangibles" means any personal property

(including things in action) other than goods, accounts, chattel

paper, documents, instruments, and money. All rights to payment

earned or unearned under a chattel or other contract involving

the use or hire of a vessel and all rights incident to the

chanter or contract are accounts.

9-107. Definitions: "Purchase Money Security Interest".

A security interest is a "purchase money security interest"

to the extent that it is

(a) taken or retained by the seller of the collateral to

secure all or part of its price; or

(b) taken by a person who by making advances or incurring

an obligation gives value to enable the debtor to acquire rights

in or the use of collateral if such value is in fact so used.

9-108. When After-Acquired Collateral Not Security for Antecedent Debt.

Where a secured party makes an advance, incurs an

obligation, releases a perfected security interest, or otherwise gives new value which is to be secured in whole or in part by after-acquired property his security interest in the after-acquired collateral shall be deemed to be taken for new value and not as security for an antecedent debt if the debtor acquires his rights in such collateral either in the ordinary course of his business or under a contract of purchase made pursuant to the security agreement within a reasonable time after new value is given.

9-109. Classification of Goods: "Consumer Goods";

"Equipment"; Farm Products"; Inventory".

Goods are

(1) "consumer goods" if they are used or bought for use

primarily for personal, family or household purposes;

(2) "equipment" if they are used or bought for use primarily in business (including farming or a profession) or by a debtor who is a non-profit organization or a governmental subdivision or agency or if the goods are not included in the definitions of inventory, farm products or consumer goods;

(3) "farm products" if they are crops or livestock or

supplies used or produced in farming operations or if they are

products of crops or livestock in their unmanufactured states

(such as ginned cotton, wool-clip, maple syrup, milk and eggs),

and if they are in the possession of a debtor engaged in raising,

fattening, grazing or other farming operations. If goods are farm

products they are neither equipment nor inventory;

(4) "inventory" if they are held by a person who holds them

for sale or lease or to be furnished under contracts of service

or if he has so furnished them, or if they are raw materials,

work in process or materials used or consumed in a business.

Inventory of a person is not to be classified as his equipment.

/* One of the most difficult sections of the UCC and one which has caused a great deal of litigation is the difference between farm products and inventory due to the various stages of value which famers add. It is important for lenders to cover the farm products and inventory of their debtors since courts have made strange rulings on the farm product/inventory categorization of farm products. */

9-110. Sufficiency of Description.

For the purposes of this Article any description of personal

property or real estate is sufficient whether or not it is

specific if it reasonably identifies what is described.

/* This replaces the "serial number" text previously required. */

9-111. Applicability of Bulk Transfer Laws.

The creation of a security interest is not a bulk transfer

under Article 6 (see Section 6-103).

Note: This provision is repealed if Article 6 is repealed.

9-112. Where Collateral 1s Not Owned by Debtor.

Unless otherwise agreed, when a secured party knows that

collateral is owned by a person who is not the debtor, the owner

of the collateral is entitled to receive from the secured party

any surplus under Section 9-502(2) or under Section 9-504(1), and

is not liable for the debt or for any deficiency after resale,

and he has the same right as the debtor

(a) to receive statements under Section 9-208;

(b) to receive notice of and to object to a secured party's

proposal to retain the collateral in satisfaction of the

indebtedness under Section 9-505;

(c) to redeem the collateral under Section 9-506;

(d) to obtain injunctive or other relief under Section 9-507(1); and

(e) to recover losses caused to him under Section 9-208(2).

9-113. Security Interests Arising Under Article on Sales or Under

Article on Leases.

A security interest arising solely under the Article on Sales (Article 2) or the Article on Leases (Article 2A) is subject to the provisions of this Article except that to the extent that and so long as the debtor does not have or does not lawfully obtain possession of the goods and

(a) no security agreement is necessary to make the security interest enforceable;

(b) no filing is required to perfect the security interest; and

(c) the rights of the secured party on default by the

debtor are governed (i) by the Article on Sales (Article 2) in the case of a security interest arising solely under such Article or (ii) by the Article on Leases (Article 2A) in the case of a

security Interest arising solely under such Article.

9-114. Consignment.

(1) A person who delivers goods under a consignment which is not a security interest and who would be required to file under this Article by paragraph (3)(c) of Section 2-326 has priority over a secured party who is or becomes a creditor of the consignee and who would have a perfected security interest in the goods if they were the property of the consignee, and also has priority with respect to identifiable cash proceeds received on or before delivery of the goods to a buyer, if

/* Notice that the term cash proceeds is modified by "identifiable" and that there are special rules on funds commingled with the general funds of the debtor. */

(a) the consignor complies with the filing provision of the

Article on Sales with respect to consignments (paragraph (3)(c)

of Section 2-326) before the consignee receives possession of the

goods; and

(b) the consignor gives notification in writing to the

holder of the security interest if the holder has filed a

financing statement covering the same types of goods before the

date of the filing made by the consignor; and

(c) the holder of the security interest receives the

notification within five years before the consignee receives

possession of the goods; and

(d) the notification states that the consignor expects to

deliver goods on consignment to the consignee, describing the

goods by item or type.

(2) In the case of a consignment which is not a security

interest and in which the requirements of the preceding

subsection have not been met, a person who delivers goods to

another is subordinate to a person who would have a perfected

security interest in the goods if they were the property of the

debtor.

PART 2

VALIDITY OF SECURITY AGREEMENT AND RIGHTS OF PARTIES THERETO

9-201. General Validity of Security Agreement.

Except as otherwise provided by this Act a security agreement is effective according to its terms between the parties, against purchasers of the collateral and against

creditors. Nothing in this Article validates any charge or

practice illegal under any statute or regulation thereunder governing usury, small loans, retail installment sales, or the like, or extends the application of any such statute or regulation to any transaction not otherwise subject thereto.

9-202. Title to Collateral Immaterial.

Each provision of this Article with regard to rights,

obligations and remedies applies whether title to collateral is

in the secured party or in the debtor.

9-203. Attachment and Enforceability of Security Interest;

Proceeds; Formal Requisites.

(1) Subject to the provisions of Section 4-210 on the

security interest of a collecting bank, Section 8-321 on security

interests in securities and Section 9-113 on a security interest

arising under the Article on Sales, a security interest is not

enforceable against the debtor or third parties with respect to

the collateral and does not attach unless:

(a) the collateral is in the possession of the secured

party pursuant to agreement, or the debtor has signed a security

agreement which contains a description of the collateral and in

addition, when the security interest covers crops growing or to

be grown or timber to be cut, a description of the land

concerned;

(b) value has been given; and

(c) the debtor has rights in the collateral.

(2) A security interest attaches when it becomes

enforceable against the debtor with respect to the collateral.

Attachment occurs as soon as all of the events specified In

subsection (1) have taken place unless explicit agreement

postpones the time of attaching.

(3) Unless otherwise agreed a security agreement gives the

secured party the rights to proceeds provided by Section 9-306.

(4) A transaction, although subject to this Article, is

also subject to ______ and in the case of conflict between the

provisions of this Article and any such statute, the provisions

of such statute control. Failure to comply with any applicable

statute has only the effect which is specified therein.

Note: At in subsection (4) insert reference to any local statute

regulating small loans, retail installment sales and the like.

9-204. After-Acquired Property; Future Advances.

(1) Except as provided in subsection (2), a security

agreement may provide that any or all obligations covered by the

security agreement are to be secured by after-acquired collateral.

(2) No security interest attaches under an after-acquired

property clause to consumer goods other than accessions (Section

9-314) when given as additional security unless the debtor

acquires rights in them within ten days after the secured party

gives value.

(3) Obligations covered by a security agreement may include

future advances or other value whether or not the advances or

value are given pursuant to commitment (subsection (1) of Section

9-105).

9-205. Use or Disposition of Collateral Without Accounting

Permissible.

A security interest is not invalid or fraudulent against

creditors by reason of liberty in the debtor to use, commingle or

dispose of all or part of the collateral (including returned or

repossessed goods) or to collect or compromise accounts or

chattel paper, or to accept the return of goods or make

repossessions, or to use, commingle or dispose of proceeds, or by reason of the failure of the secured party to require the debtor to account for proceeds or replace collateral. This section does not relax the requirements of possession where perfection of a security interest depends upon possession of the collateral by the secured party or by a bailee.

9-206. Agreement Not to Assent Defenses Against Assignee;

Modification of Sales Warranties Where Security Agreement Exists.

(1) Subject to any statute or decision which establishes a

different rule for buyers or lessees of consumer goods, an

agreement by a buyer or lessee that he will not assent against an

assignee any claim or defense which he may have against the

seller or lessor is enforceable by an assignee who takes his

assignment for value, in good faith and without notice of a claim

or defense, except as to defenses of a type which may be assented

against a holder in due course of a negotiable instrument under

the Article on Negotiable Instruments (Article 3). A buyer who as

part of one transaction signs both a negotiable Instrument and a

security agreement makes such an agreement

(2) When a seller retains a purchase money security

interest in goods the Article on Sales (Article 2) governs the sale and any disclaimer, limitation or modification of the seller's warranties.

9-207. Rights and Duties When Collateral Is in Secured

Party's Possession.

(1) A secured party must use reasonable care in the custody

and preservation of collateral in his possession. In the case of

an instrument or chattel paper reasonable care includes taking

necessary steps to preserve rights against prior panties unless

otherwise agreed.

(2) Unless otherwise agreed, when collateral is in the

secured party's possession

(a) reasonable expenses (including the cost of any

Insurance and payment of taxes or other charges) incurred in the

custody, preservation, use or operation of the collateral are

chargeable to the debtor and are secured by the collateral;

(b) the risk of accidental loss or damage is on the debtor

to the extent of any deficiency in any effective insurance coverage;

(c) the secured party may hold as additional security any

increase or profits (except money) received from the collateral,

but money so received, unless remitted to the debtor, shall be

applied in reduction of the secured obligation;

(d) the secured party must keep the collateral identifiable

but fungible collateral may be commingled;

(e) the secured party may repledge the collateral upon

terms which do not impair the debtor's right to redeem it.

(3) A secured party is liable for any loss caused by his

failure to meet any obligation imposed by the preceding

subsections but does not lose his security interest.

(4) A secured party may use or operate the collateral for

the purpose of preserving the collateral or its value or pursuant

to the order of a court of appropriate jurisdiction or, except in

the case of consumer goods, in the manner and to the extent

provided in the security agreement.

9-208. Request for Statement of Account or List of

Collateral.

(1) A debtor may sign a statement indicating what he

believes to be the aggregate amount of unpaid indebtedness as of

a specified date and may send it to the secured party with a

request that the statement be approved or corrected and returned

to the debtor. When the security agreement or any other record

kept by the secured party identifies the collateral a debtor may

similarly request the secured party to approve or correct a list

of the collateral.

(2) The secured party must comply with such a request

within two weeks after receipt by sending a written correction or

approval. If the secured party claims a security interest in all

of a particular type of collateral owned by the debtor he may

indicate that fact in his reply and need not approve or correct

an itemized list of such collateral. If the secured party without

reasonable excuse fails to comply he is liable for any loss

caused to the debtor thereby; and if the debtor has properly

included in his request a good faith statement of the obligation

or a list of the collateral or both the secured party may claim a

security interest only as shown in the statement against persons

misled by his failure to comply. If he no longer has an interest

in the obligation or collateral at the time the request is

received he must disclose the name and address of any successor

in interest known to him and he is liable for any loss caused to

the debtor as a result of failure to disclose. A successor In

interest is not subject to this section until a request is

received by him.

(3) A debtor is entitled to such a statement once every six

months without charge. The secured party may require payment of

a charge not exceeding $10 for each additional statement

furnished.

PART3

RIGHTS OF THIRD PARTIES; PERFECTED AND UNPERFECTED SECURITY INTERESTS; RULES OF PRIORITY

9-301. Persons Who Take Priority Over Unperfected Security

Interests; Rights of "Lien Creditor".

(1) Except as otherwise provided in subsection (2), an

unperfected security interest is subordinate to the rights of

(a) persons entitled to priority under Section 9-312;

a person who becomes a lien creditor before the security

interest is perfected;

(c) in the case of goods, instruments, documents, and

chattel paper, a person who is not a secured party and who is a

transferee in bulk or other buyer not in ordinary course of

business or is a buyer of farm products in ordinary course of

business, to the extent that he gives value and receives delivery

of the collateral without knowledge of the security interest and

before it is perfected;

(d) in the case of accounts and general intangibles, a

person who is not a secured party and who is a transferee to the

extent that he gives value without knowledge of the security

interest and before it is perfected.

(2) If the secured party files with respect to a purchase

money security interest before or within ten days after the

debtor receives possession of the collateral, he takes priority

over the rights of a transferee in bulk or of a lien creditor

which arise between the time the security interest attaches and

the time of filing.

(3) A "lien creditor" means a creditor who has acquired a

lien on the property involved by attachment, levy or the like and

includes an assignee for benefit of creditors from the time of

assignment, and a trustee in bankruptcy from the date of the

filing of the petition or a receiver in equity from the time of

appointment.

(4) A person who becomes a lien creditor while a security

interest is perfected takes subject to the security interest only

to the extent that it secures advances made before he becomes a

lien creditor or within 45 days thereafter or made without

knowledge of the lien or pursuant to a commitment entered into

without knowledge of the lien.

9-302. When Filing Is Required to Perfect Security Interest;

Security Interests to Which Filing Provisions of This Article Do

Not Apply.

(1) A financing statement must be filed to perfect all

security interests except the following:

(a) a security interest in collateral in Possession of the

secured party under Section 9-305;

(b) a security interest temporarily perfected in instruments or documents without delivery under Section 9-304 or in proceeds for a 10 day period under Section 9-306;

(c) a security interest created by an assignment of a beneficial interest in a trust or a decedent's estate;

(d) a purchase money security interest in consumer goods; but filing is required for a motor vehicle required to be registered; and fixture filing is required for priority over conflicting interests in fixtures to the extent provided in Section 9-313;

(e) an assignment of accounts which does not alone or in

conjunction with other assignments to the same assignee transfer a significant part of the outstanding accounts of the assignor;

(f) a security interest of a collecting bank (Section 4-210) or in securities (Section 8-321) or arising under the Article on sales (see Section 9-113) or covered in subsection (3) of this section

(g) an assignment for the benefit of all the creditors of the transferor, and subsequent transfers by the assignee thereunder.

(2) If a secured party assigns a perfected security

interest, no filing under this Article is required in order to

continue the perfected status of the security interest against

creditors of and transferees from the original debtor.

(3) The filing of a financing statement otherwise required

by this Article is not necessary or effective to perfect a

security interest in property subject to

(a) a statute or treaty of the United States which provides

for a national or international registration or a national or

international certificate of title or which specifies a place of

filing different from that specified in this Article for filing

of the security interest; or

(b) the following statutes of this state; [list any

certificate of title statute covering automobiles, trailers,

mobile homes, boats, farm tractors, or the like, and any central

filing statute *]; but during any period in which collateral is

inventory held for sale by a person who is in the business of

Selling goods of that kind, the filing provisions of this Article

(Part 4) apply to a security interest in that collateral

created by him as debtor; or

(c) a certificate of title statute of another jurisdiction under the law of which indication of a security interest on the

certificate is required as a condition of perfection (subsection

(2) of Section 9-103).

(4) Compliance with a statute or treaty described in

subsection (3) is equivalent to the filing of a financing

statement under this Article, and a security interest in property subject to the statute or treaty can be perfected only by

compliance therewith except as provided in Section 9-103 on

multiple state transactions. Duration and renewal of perfection

of a security interest perfected by compliance with the statute

or treaty are governed by the provisions of the statute or

treaty; in other respects the security Interest is subject to

this Article.

Note: It is recommended that the Provisions of certificate of

title acts for perfection of security interests by notation on

the certificates should be amended to exclude coverage of

inventory held for sale.

9-303. When Security Interest Is Perfected; Continuity of

Perfection.

(1) A security interest is perfected when it has attached

and when all of the applicable steps required for perfection have

been taken. Such steps are specified in Sections 9-302, 9-304, 9-

305 and 9-306. If such steps are taken before the security

interest attaches, it is perfected at the time when it attaches.

(2) If a security interest is originally perfected in any

way permitted under this Article and is subsequently perfected in

some other way under this Article, without an Intermediate period

when it was unperfected, the security interest shall be deemed to

be perfected continuously for the purposes of this Article.

9-304. Perfection of Security Interest in Instruments,

Documents, and Goods Covered by Documents; Perfection by

Permissive Filing; Temporary Perfection Without Filing or

Transfer of Possession.

(1) A security interest in chattel paper or negotiable

documents may be perfected by filing. A security interest in money

or instruments (other than certificated securities or instruments

which constitute part of chattel paper) can be perfected only by

the secured party's taking possession, except as provided in

subsections (4) and (5) of this section and subsections (2) and

(3) of Section 9-306 on proceeds.

(2) During the period that goods are in the possession of

the issuer of a negotiable document therefor, a security interest

in the goods is perfected by perfecting a security interest in

the document, and any security interest in the goods otherwise

perfected during such period is subject thereto.

(3) A security interest in goods in the possession of a

bailee other than one who has issued a negotiable document

therefor is perfected by issuance of a document in the name of

the secured party or by the bailee's receipt of notification of

the secured party's interest or by filing as to the goods.

(4) A security interest in instruments (other than

certificated securities) or negotiable documents is perfected

without filing or the taking of possession for a period of 21

days from the time it attaches to the extent that it arises for

new value given under a written security agreement.

(5) A security interest remains perfected for a period of

21 days without filing where a secured party having a perfected

security interest in an instrument (other than a certificated

security), a negotiable document or goods in possession of a

bailee other than one who has issued a negotiable document

therefor

(a) makes available to the debtor the goods or documents

representing the goods for the purpose of ultimate sale or

exchange or for the purpose of loading, unloading, storing,

shipping, transshipping, manufacturing, processing or otherwise

dealing with them in a manner preliminary to their sale or

exchange, but priority between conflicting security interests in

the goods is subject to subsection (3) of Section 9-312; or

(b) delivers the instrument to the debtor for the purpose

of ultimate sale or exchange or of presentation, collection,

renewal or registration of transfer.

(6) After the 21 day period in subsections (4) and (5)

perfection depends upon compliance with applicable provisions of

this Article.

9-305. When Possession by Secured Party Perfects Security

Interest Without Filing.

A security interest in letters of credit and advices of credit (subsection (2)(a) of Section 5-116), goods, instruments (other than certificated securities), money, negotiable documents, or chattel paper may be perfected by the secured party's taking possession of the collateral. If such collateral other than goods covered by a negotiable document is held by a bailee, the secured party is deemed to have possession from the time the bailee receives notification of the secured party's interest. A Security interest is perfected by possession

from the time possession is taken without a relation back and

continues only so long as Possession is retained, unless

otherwise specified in this Article. The security interest may be

otherwise perfected as provided in this Article before or after

the period of possession by the secured party.

9-306. "Proceeds"; Secured Party's Rights on Disposition of

Collateral.

(1) "Proceeds" includes whatever is received upon the sale,

exchange, collection or other disposition of collateral or

proceeds. Insurance payable by reason of loss or damage to the

collateral is proceeds, except to the extent that it is payable

to a person other than a party to the security agreement. Money,

checks, deposit accounts and the like are "cash proceeds". All other proceeds are "noncash proceeds."

(2) Except where this Article otherwise provides, a

security interest continues in collateral notwithstanding sale, exchange or other disposition thereof unless the disposition was authorized by the secured party in the security agreement or otherwise, and also continues in any identifiable proceeds including collections received by the debtor.

(3) The security interest in proceeds is a continuously

perfected security interest if the interest in the original

collateral was perfected but it ceases to be a perfected security

interest and becomes unperfected ten days after receipt of the

proceeds by the debtor unless

(a) a filed financing statement covers the original

collateral and the proceeds are collateral in which a security

interest may be perfected by filing in the office or offices

where the financing statement has been filed and, if the proceeds

are acquired with cash proceeds, the description of collateral in

the financing statement indicates the types of property constituting the proceeds; or

(b) a filed financing statement covers the original collateral and the proceeds are identifiable cash proceeds; or

(c) the security interest in the proceeds is perfected

before the expiration of the ten day period.

Except as provided in this section, a security interest in

proceeds can be perfected only by the methods or under the

circumstances permitted in this Article for original collateral

of the same type.

(4) In the event of insolvency proceedings instituted by or

against a debtor, a secured party with a perfected security

interest in proceeds has a perfected security interest only in

the following proceeds:

(a) in identifiable non-cash proceeds and in separate

deposit accounts containing only proceeds;

(b) in identifiable cash proceeds in the form of money

which is neither commingled with other money nor deposited in a

deposit account prior to the insolvency proceedings;

(c) in identifiable cash proceeds in the form of checks and

the like which are not deposited in a deposit account prior to

the insolvency proceedings; and

(d) in all cash and deposit accounts of the debtor in which

proceeds have been commingled with other funds, but the perfected

security interest under this paragraph (d) is

(i) subject to any right to set-off; and

(ii) limited to an amount not greater than the amount of any

cash proceeds received by the debtor within ten days before the

institution of the insolvency proceedings less the sum of (1) the

payments to the secured party on account of cash proceeds

received by the debtor during such period and (11) the cash

proceeds received by the debtor during such period to which the

secured party is entitled under paragraphs (a) through (c) of this subsection (4).

(5) If a sale of goods results in an account or chattel

paper which is transferred by the seller to a secured party, and

if the goods are returned to or are repossessed by the seller or

the secured party, the following rules determine priorities:

(a) If the goods were collateral at the time of sale, for

an indebtedness of the seller which is still unpaid, the original

security interest attaches again to the goods and continues as a

perfected security interest if it was perfected at the time when

the goods were sold. If the security interest was originally

perfected by a filing which is still effective, nothing further

is required to continue the perfected status; in any other case,

the secured party must take possession of the returned or

repossessed goods or must file.

(b) An unpaid transferee of the chattel paper has a

security interest in the goods against the transferor. Such

security interest is prior to a security interest asserted under

paragraph (a) to the extent that the transferee of the chattel

paper was entitled to priority under Section 9-308.

(c) An unpaid transferee of the account has a security

interest in the goods against the transferor. Such security

interest is subordinate to a security interest asserted under

paragraph (a).

(d) A security interest of an unpaid transferee asserted under

paragraph (b) or must be perfected for protection against

creditors of the transferor and purchasers of the returned or repossessed goods.

9-307. Protection of Buyers of Goods.

(1) A buyer in ordinary course of business (subsection (9)

of Section 1-201) other than a person buying farm products from a

person engaged in farming operations takes free of a security

interest created by his seller even though the security interest

is perfected and even though the buyer knows of its existence.

(2) In the case of consumer goods, a buyer takes free of a

security interest even though perfected if he buys without

knowledge of the security interest, for value and for his own

personal, family or household purposes unless prior to the

purchase the secured party has filed a financing statement

covering such goods.

(3) A buyer other than a buyer in ordinary course of

business (subsection (1) of this section) takes free of a

security interest to the extent that it secures future advances

made after the secured party acquires knowledge of the purchase,

or more than 45 days after the purchase, whichever first occurs,

unless made pursuant to a commitment entered into without

knowledge of the purchase and before the expiration of the 45 day

period.

9-308. Purchase of Chattel Paper and Instruments.

A purchaser of chattel paper or an instrument who gives new

value and takes possession of it in the ordinary course of his

business has priority over a security interest in the chattel

paper or instrument

(a) which is perfected under Section 9-304 (permissive

filing and temporary perfection) or under Section 9-306

(perfection as to proceeds) if he acts without knowledge that the

specific paper or instrument is subject to a security interest;

or

(b) which is claimed merely as proceeds of inventory

subject to a security interest (Section 9-306) even though he

knows that the specific paper or instrument is subject to the

security interest.

9-309. Protection of Purchasers of Instruments, Documents, and

Securities.

Nothing in this Article limits the rights of a holder in due course of a negotiable instrument (Section 3-302) or a holder to whom a negotiable document of title has been duly negotiated (Section 7-501) or a bona fide purchaser of a security (Section 8-302) and the holders or purchasers take priority over an earlier security interest even though perfected. Filing under this Article does not constitute notice of the security interest to such holders or purchasers.

9-310. Priority of Certain Liens Arising by Operation of

Law.

When a person in the ordinary course of his business

furnishes services or materials with respect to goods subject to

a security interest, a lien upon goods in the possession of such

person given by statute or rule of law for such materials or

services takes priority over a perfected security interest unless

the lien is statutory and the statute expressly provides

otherwise.

9-311. Alienability of Debtor's Rights: judicial Process.

The debtor's rights in collateral may be voluntarily or

involuntarily transferred (by way of sale, creation of a security

interest, attachment, levy, garnishment or other judicial

process) notwithstanding a provision in the security agreement

prohibiting any transfer or making the transfer constitute a

default.