- Consolidated Laws - Uniform Commercial Code
PART 2
GENERAL DEFINITIONS AND PRINCIPLES OF INTERPRETATION
Section 1--201. General Definitions.
Subject to additional definitions contained in the subsequent Articles
of this Act which are applicable to specific Articles or Parts thereof,
and unless the context otherwise requires, in this Act:
(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.
(2) "Aggrieved party" means a party entitled to resort to a remedy.
(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 this Act (Sections 1--205 and 2--208). Whether an agreement has legal
consequences is determined by the provisions of this Act, if applicable;
otherwise by the law of contracts (Section 1--103). (Compare
"Contract".)
(4) "Bank" means any person engaged in the business of banking.
(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.
(7) "Branch" includes a separately incorporated foreign branch of a
bank.
(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
non-existence.
(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.
(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: NON-NEGOTIABLE 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 Act 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.
(16) "Fault" means wrongful act, omission or breach.
(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 Act to the extent that under a
particular agreement or document unlike units are treated as
equivalents.
(18) "Genuine" means free of forgery or counterfeiting.
(19) "Good faith" means honesty in fact in the conduct or transaction
concerned.
(20) "Holder" means a person who is in possession of a document of
title or an instrument or an investment certificated security drawn,
issued or indorsed to him or to his order or to bearer or in blank.
(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 as a part of its currency except that it
does not include rare or unusual coins used for numismatic purposes.
Such rare or unusual coins shall be considered goods; provided, however,
that nothing in this subsection shall be deemend to impair or alter the
obligation of an insurer to an insured under a contract of insurance
heretofore of hereafter issued or delivered in this state covering loss
of or damage to property.
(25) A person has "notice" of a fact when
(a) he has actual knowledge of it; or
(b) he has received a notice or notification of it; or
(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 Act.
(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
(a) it comes to his attention; or
(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 Act.
(30) "Person" includes an individual or an organization (See Section
1--102).
(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 non-existence.
(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.
(33) "Purchaser" means a person who takes by purchase.
(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.
(36) "Rights" includes remedies.
(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 Article 9. 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 Article 9. Except
as otherwise provided in Section 2--505, the right of a seller or lessor
of goods under Article 2 or 2-A 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 Article 9. 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".
(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) For purposes of this subsection (37):
(i) Additional consideration is not nominal if (A) 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 (B) 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. 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;
(ii) "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; and
(iii) "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 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. Without limiting the
generality of the preceding sentence, any financing or other statement
or security agreement filed pursuant to Part 5 of Article 9 which
contains a copy, however made, of the signature of a secured party or
his representative, or of a debtor or his representative, is "signed" by
the secured party or the debtor, as the case may be.
(40) "Surety" includes guarantor.
(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 or indorsement means one made without
actual, implied or apparent authority and includes a forgery.
(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.
(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.
Section 1--202. 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.
Section 1--203. Obligation of Good Faith.
Every contract or duty within this Act imposes an obligation of good
faith in its performance or enforcement.
Section 1--204. Time; Reasonable Time; "Seasonably".
(1) Whenever this Act requires any action to be taken within a
reasonable time, any time which is not manifestly unreasonable may be
fixed by agreement.
(2) What is a reasonable time for taking any action depends on the
nature, purpose and circumstances of such action.
(3) 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.
Section 1--205. Course of Dealing and Usage of Trade.
(1) 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.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) 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.
Section 1--206. Statute of Frauds for Kinds of Personal Property Not
Otherwise Covered.
(1) Except in the cases described in subsection (2) of this section a
contract for the sale of personal property is not enforceable by way of
action or defense beyond five thousand dollars 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.
(2) Subsection (1) of this section does not apply to contracts for the
sale of goods (Section 2--201) nor of securities (Section 8--113) nor to
security agreements (Section 9--203).
(3) Subsection one of this section does not apply to a qualified
financial contract as that term is defined in paragraph two of
subdivision b of section 5-701 of the general obligations law if either
(a) there is, as provided in paragraph three of subdivision b of section
5-701 of such law, sufficient evidence to indicate that a contract has
been made or (b) the parties thereto, by means of a prior or subsequent
written contract, have agreed to be bound by the terms of such qualified
financial contract from the time they reach agreement (by telephone, by
exchange of electronic messages, or otherwise) on those terms.
Section 1--207. Performance or Acceptance Under Reservation of Rights.
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.
Section 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.
Section 1-209. 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.
