REPORT TITLE:
UCC Article 9


DESCRIPTION:
Adopts revised (1998) version of Uniform Commercial Code (secured
transactions).

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
HOUSE OF REPRESENTATIVES                H.B. NO.1626       
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO REVISED UNIFORM COMMERCIAL CODE ARTICLE 9--SECURED
   TRANSACTIONS.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  Chapter 490, Hawaii Revised Statutes, is amended
 
 2 by adding a new article 9 to read as follows:
 
 3                 "ARTICLE 9.  SECURED TRANSACTIONS
 
 4                    PART 1.  GENERAL PROVISIONS
 
 5               SUBPART 1.  SHORT TITLE, DEFINITIONS,
 
 6                       AND GENERAL CONCEPTS
 
 7      490:9-101  Short title.  This article may be cited as
 
 8 Uniform Commercial Code-Secured Transactions.
 
 9      490:9-102  Definitions and index of definitions.  (a)  In
 
10 this chapter:
 
11      "Accession" means goods that are physically united with
 
12 other goods in such a manner that the identity of the original
 
13 goods is not lost.
 
14      "Account", except as used in "account for", means a right to
 
15 payment of a monetary obligation, whether or not earned by
 
16 performance, (i) for property that has been or is to be sold,
 
17 leased, licensed, assigned, or otherwise disposed of, (ii) for
 
18 services rendered or to be rendered, (iii) for a policy of
 
19 insurance issued or to be issued, (iv) for a secondary obligation
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 incurred or to be incurred, (v) for energy provided or to be
 
 2 provided, (vi) for the use or hire of a vessel under a charter or
 
 3 other contract, (vii) arising out of the use of a credit or
 
 4 charge card or information contained on or for use with the card,
 
 5 or (viii) as winnings in a lottery or other game of chance
 
 6 operated or sponsored by a state, governmental unit of a state,
 
 7 or person licensed or authorized to operate the game by a state
 
 8 or governmental unit of a state.  The term includes health-care-
 
 9 insurance receivables.  The term does not include (i) rights to
 
10 payment evidenced by chattel paper or an instrument, (ii)
 
11 commercial tort claims, (iii) deposit accounts, (iv) investment
 
12 property, (v) letter-of-credit rights or letters of credit, or
 
13 (vi) rights to payment for money or funds advanced or sold, other
 
14 than rights arising out of the use of a credit or charge card or
 
15 information contained on or for use with the card.
 
16      "Account debtor" means a person obligated on an account,
 
17 chattel paper, or general intangible.  The term does not include
 
18 persons obligated to pay a negotiable instrument, even if the
 
19 instrument constitutes part of chattel paper.
 
20      "Accounting", except as used in "accounting for", means a
 
21 record:
 
22      (1)  Authenticated by a secured party;
 
23      (2)  Indicating the aggregate unpaid secured obligations as
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           of a date not more than thirty-five days earlier or
 
 2           thirty-five days later than the date of the record; and
 
 3      (3)  Identifying the components of the obligations in
 
 4           reasonable detail.
 
 5      "Agricultural lien" means an interest, other than a security
 
 6 interest, in farm products:
 
 7      (1)  Which secures payment or performance of an obligation
 
 8           for:
 
 9           (A)  Goods or services furnished in connection with a
 
10                debtor's farming operation; or
 
11           (B)  Rent on real property leased by a debtor in
 
12                connection with its farming operation;
 
13      (2)  Which is created by statute in favor of a person that:
 
14           (A)  In the ordinary course of its business furnished
 
15                goods or services to a debtor in connection with a
 
16                debtor's farming operation; or
 
17           (B)  Leased real property to a debtor in connection
 
18                with the debtor's farming operation; and
 
19      (3)  Whose effectiveness does not depend on the person's
 
20           possession of the personal property.
 
21      "As-extracted collateral" means:
 
22      (1)  Oil, gas, or other minerals that are subject to a
 
23           security interest that:
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           (A)  Is created by a debtor having an interest in the
 
 2                minerals before extraction; and
 
 3           (B)  Attaches to the minerals as extracted; or
 
 4      (2)  Accounts arising out of the sale at the wellhead or
 
 5           minehead of oil, gas, or other minerals in which the
 
 6           debtor had an interest before extraction.
 
 7      "Authenticate" means:
 
 8      (1)  To sign; or
 
 9      (2)  To execute or otherwise adopt a symbol, or encrypt or
 
10           similarly process a record in whole or in part, with
 
11           the present intent of the authenticating person to
 
12           identify the person and adopt or accept a record.
 
13      "Bank" means an organization that is engaged in the business
 
14 of banking.  The term includes savings banks, savings and loan
 
15 associations, credit unions, and trust companies.
 
16      "Cash proceeds" means proceeds that are money, checks,
 
17 deposit accounts, or the like.
 
18      "Certificate of title" means a certificate of title with
 
19 respect to which a statute provides for the security interest in
 
20 question to be indicated on the certificate as a condition or
 
21 result of the security interest's obtaining priority over the
 
22 rights of a lien creditor with respect to the collateral.
 
23      "Chattel paper" means a record or records that evidence both
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 a monetary obligation and a security interest in specific goods,
 
 2 a security interest in specific goods and software used in the
 
 3 goods, or a lease of specific goods.  The term does not include
 
 4 charters or other contracts involving the use or hire of a
 
 5 vessel.  If a transaction is evidenced both by a security
 
 6 agreement or lease and by an instrument or series of instruments,
 
 7 the group of records taken together constitutes chattel paper.
 
 8      "Collateral" means the property subject to a security
 
 9 interest or agricultural lien.  The term includes:
 
10      (1)  Proceeds to which a security interest attaches;
 
11      (2)  Accounts, chattel paper, payment intangibles, and
 
12           promissory notes that have been sold; and
 
13      (3)  Goods that are the subject of a consignment.
 
14      "Commercial tort claim" means a claim arising in tort with
 
15 respect to which:
 
16      (1)  The claimant is an organization; or
 
17      (2)  The claimant is an individual and the claim:
 
18           (A)  Arose in the course of the claimant's business or
 
19                profession; and
 
20           (B)  Does not include damages arising out of personal
 
21                injury to or the death of an individual.
 
22      "Commodity account" means an account maintained by a
 
23 commodity intermediary in which a commodity contract is carried
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 for a commodity customer.
 
 2      "Commodity contract" means a commodity futures contract, an
 
 3 option on a commodity futures contract, a commodity option, or
 
 4 another contract if the contract or option is:
 
 5      (1)  Traded on or subject to the rules of a board of trade
 
 6           that has been designated as a contract market for such
 
 7           a contract pursuant to federal commodities laws; or
 
 8      (2)  Traded on a foreign commodity board of trade, exchange,
 
 9           or market, and is carried on the books of a commodity
 
10           intermediary for a commodity customer.
 
11      "Commodity customer" means a person for which a commodity
 
12 intermediary carries a commodity contract on its books.
 
13      "Commodity intermediary" means a person that:
 
14      (1)  Is registered as a futures commission merchant under
 
15           federal commodities law; or
 
16      (2)  In the ordinary course of its business provides
 
17           clearance or settlement services for a board of trade
 
18           that has been designated as a contract market pursuant
 
19           to federal commodities law.
 
20      "Communicate" means:
 
21      (1)  To send a written or other tangible record;
 
22      (2)  To transmit a record by any means agreed upon by the
 
23           persons sending and receiving the record; or
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (3)  In the case of transmission of a record to or by a
 
 2           filing office, to transmit a record by any means
 
 3           prescribed by filing-office rule.
 
 4      "Consignee" means a merchant to which goods are delivered in
 
 5 a consignment.
 
 6      "Consignment" means a transaction, regardless of its form,
 
 7 in which a person delivers goods to a merchant for the purpose of
 
 8 sale and:
 
 9      (1)  The merchant:
 
10           (A)  Deals in goods of that kind under a name other
 
11                than the name of the person making delivery;
 
12           (B)  Is not an auctioneer; and
 
13           (C)  Is not generally known by its creditors to be
 
14                substantially engaged in selling the goods of
 
15                others;
 
16      (2)  With respect to each delivery, the aggregate value of
 
17           the goods is $1,000 or more at the time of delivery;
 
18      (3)  The goods are not consumer goods immediately before
 
19           delivery; and
 
20      (4)  The transaction does not create a security interest
 
21           that secures an obligation.
 
22      "Consignor" means a person that delivers goods to a
 
23 consignee in a consignment.
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      "Consumer debtor" means a debtor in a consumer transaction.
 
 2      "Consumer goods" means goods that are used or bought for use
 
 3 primarily for personal, family, or household purposes.
 
 4      "Consumer-goods transaction" means a consumer transaction in
 
 5 which:
 
 6      (1)  An individual incurs an obligation primarily for
 
 7           personal, family, or household purposes; and
 
 8      (2)  A security interest in consumer goods secures the
 
 9           obligation.
 
10      "Consumer obligor" means an obligor who is an individual and
 
11 who incurred the obligation as part of a transaction entered into
 
12 primarily for personal, family, or household purposes.
 
13      "Consumer transaction" means a transaction in which (i) an
 
14 individual incurs an obligation primarily for personal, family,
 
15 or household purposes, (ii) a security interest secures the
 
16 obligation, and (iii) the collateral is held or acquired
 
17 primarily for personal, family, or household purposes.  The term
 
18 includes consumer-goods transactions.
 
19      "Continuation statement" means an amendment of a financing
 
20 statement which:
 
21      (1)  Identifies, by its file number, the initial financing
 
22           statement to which it relates; and
 
23      (2)  Indicates that it is a continuation statement for, or
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           that it is filed to continue the effectiveness of, the
 
 2           identified financing statement.
 
 3      "Debtor" means:
 
 4      (1)  A person having an interest, other than a security
 
 5           interest or other lien, in the collateral, whether or
 
 6           not the person is an obligor;
 
 7      (2)  A seller of accounts, chattel paper, payment
 
 8           intangibles, or promissory notes; or
 
 9      (3)  A consignee.
 
10      "Deposit account" means a demand, time, savings, passbook,
 
11 or similar account maintained with a bank.  The term does not
 
12 include investment property or accounts evidenced by an
 
13 instrument.
 
14      "Document" means a document of title or a receipt of the
 
15 type described in section 490:7-201(2).
 
16      "Electronic chattel paper" means chattel paper evidenced by
 
17 a record or records consisting of information stored in an
 
18 electronic medium.
 
19      "Encumbrance" means a right, other than an ownership
 
20 interest, in real property.  The term includes mortgages and
 
21 other liens on real property.
 
22      "Equipment" means goods other than inventory, farm products,
 
23 or consumer goods.
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      "Farm products" means goods, other than standing timber,
 
 2 with respect to which the debtor is engaged in a farming
 
 3 operation and which are:
 
 4      (1)  Crops grown, growing, or to be grown, including:
 
 5           (A)  Crops produced on trees, vines, and bushes; and
 
 6           (B)  Aquatic goods produced in aquacultural operations;
 
 7      (2)  Livestock, born or unborn, including aquatic goods
 
 8           produced in aquacultural operations;
 
 9      (3)  Supplies used or produced in a farming operation; or
 
10      (4)  Products of crops or livestock in their unmanufactured
 
11           states.
 
12      "Farming operation" means raising, cultivating, propagating,
 
13 fattening, grazing, or any other farming, livestock, or
 
14 aquacultural operation.
 
15      "File number" means the number assigned to an initial
 
16 financing statement pursuant to section 490:9-519(a).
 
17      "Filing office" means an office designated in section
 
18 490:9-501 as the place to file a financing statement.
 
19      "Filing-office rule" means a rule adopted pursuant to
 
20 section 490:9-526.
 
21      "Financing statement" means a record or records composed of
 
22 an initial financing statement and any filed record relating to
 
23 the initial financing statement.
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      "Fixture filing" means the filing of a financing statement
 
 2 covering goods that are or are to become fixtures and satisfying
 
 3 section 490:9-502(a) and (b).  The term includes the filing of a
 
 4 financing statement covering goods of a transmitting utility
 
 5 which are or are to become fixtures.
 
 6      "Fixtures" means goods that have become so related to
 
 7 particular real property that an interest in them arises under
 
 8 real property law.
 
 9      "General intangible" means any personal property, including
 
10 things in action, other than accounts, chattel paper, commercial
 
11 tort claims, deposit accounts, documents, goods, instruments,
 
12 investment property, letter-of-credit rights, letters of credit,
 
13 money, and oil, gas, or other minerals before extraction.  The
 
14 term includes payment intangibles and software.
 
15      "Good faith" means honesty in fact and the observance of
 
16 reasonable commercial standards of fair dealing.
 
17      "Goods" means all things that are movable when a security
 
18 interest attaches.  The term includes (i) fixtures, (ii) standing
 
19 timber that is to be cut and removed under a conveyance or
 
20 contract for sale, (iii) the unborn young of animals, (iv) crops
 
21 grown, growing, or to be grown, even if the crops are produced on
 
22 trees, vines, or bushes, and (v) manufactured homes.  The term
 
23 also includes a computer program embedded in goods and any
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 supporting information provided in connection with a transaction
 
 2 relating to the program if (i) the program is associated with the
 
 3 goods in such a manner that it customarily is considered part of
 
 4 the goods, or (ii) by becoming the owner of the goods, a person
 
 5 acquires a right to use the program in connection with the goods.
 
 6 The term does not include a computer program embedded in goods
 
 7 that consist solely of the medium with which the program is
 
 8 embedded.  The term also does not include accounts, chattel
 
 9 paper, commercial tort claims, deposit accounts, documents,
 
10 general intangibles, instruments, investment property, letter-of-
 
11 credit rights, letters of credit, money, or oil, gas, or other
 
12 minerals before extraction.
 
13      "Governmental unit" means a subdivision, agency, department,
 
14 county, parish, municipality, or other unit of the government of
 
15 the United States, a State, or a foreign country.  The term
 
16 includes an organization having a separate corporate existence if
 
17 the organization is eligible to issue debt on which interest is
 
18 exempt from income taxation under the laws of the United States.
 
19      "Health-care-insurance receivable" means an interest in or
 
20 claim under a policy of insurance which is a right to payment of
 
21 a monetary obligation for health-care goods or services provided.
 
22      "Instrument" means a negotiable instrument or any other
 
23 writing that evidences a right to the payment of a monetary
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 obligation, is not itself a security agreement or lease, and is
 
 2 of a type that in ordinary course of business is transferred by
 
 3 delivery with any necessary indorsement or assignment.  The term
 
 4 does not include (i) investment property, (ii) letters of credit,
 
 5 or (iii) writings that evidence a right to payment arising out of
 
 6 the use of a credit or charge card or information contained on or
 
 7 for use with the card.
 
 8      "Inventory" means goods, other than farm products, which:
 
 9      (1)  Are leased by a person as lessor;
 
10      (2)  Are held by a person for sale or lease or to be
 
11           furnished under a contract of service;
 
12      (3)  Are furnished by a person under a contract of service;
 
13           or
 
14      (4)  Consist of raw materials, work in process, or materials
 
15           used or consumed in a business.
 
16      "Investment property" means a security, whether certificated
 
17 or uncertificated, security entitlement, securities account,
 
18 commodity contract, or commodity account.
 
19      "Jurisdiction of organization", with respect to a registered
 
20 organization, means the jurisdiction under whose law the
 
21 organization is organized.
 
22      "Letter-of-credit right" means a right to payment or
 
23 performance under a letter of credit, whether or not the
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 beneficiary has demanded or is at the time entitled to demand
 
 2 payment or performance.  The term does not include the right of a
 
 3 beneficiary to demand payment or performance under a letter of
 
 4 credit.
 
 5      "Lien creditor" means:
 
 6      (1)  A creditor that has acquired a lien on the property
 
 7           involved by attachment, levy, or the like;
 
 8      (2)  An assignee for benefit of creditors from the time of
 
 9           assignment;
 
10      (3)  A trustee in bankruptcy from the date of the filing of
 
11           the petition; or
 
12      (4)  A receiver in equity from the time of appointment.
 
13      "Manufactured home" means a structure, transportable in one
 
14 or more sections, which, in the traveling mode, is eight body
 
15 feet or more in width or forty body feet or more in length, or,
 
16 when erected on site, is three hundred twenty or more square
 
17 feet, and which is built on a permanent chassis and designed to
 
18 be used as a dwelling with or without a permanent foundation when
 
19 connected to the required utilities, and includes the plumbing,
 
20 heating, air-conditioning, and electrical systems contained
 
21 therein.  The term includes any structure that meets all of the
 
22 requirements of this paragraph except the size requirements and
 
23 with respect to which the manufacturer voluntarily files a
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 certification required by the United States Secretary of Housing
 
 2 and Urban Development and complies with the standards established
 
 3 under Title 42 of the United States Code.
 
 4      "Manufactured-home transaction" means a secured transaction:
 
 5      (1)  That creates a purchase-money security interest in a
 
 6           manufactured home, other than a manufactured home held
 
 7           as inventory; or
 
 8      (2)  In which a manufactured home, other than a manufactured
 
 9           home held as inventory, is the primary collateral.
 
10      "Mortgage" means a consensual interest in real property,
 
11 including fixtures, which secures payment or performance of an
 
12 obligation.
 
13      "New debtor" means a person that becomes bound as debtor
 
14 under section 490:9-203(d) by a security agreement previously
 
15 entered into by another person.
 
16      "New value" means (i) money, (ii) money's worth in property,
 
17 services, or new credit, or (iii) release by a transferee of an
 
18 interest in property previously transferred to the transferee.
 
19 The term does not include an obligation substituted for another
 
20 obligation.
 
21      "Noncash proceeds" means proceeds other than cash proceeds.
 
22      "Obligor" means a person that, with respect to an obligation
 
23 secured by a security interest in or an agricultural lien on the
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 collateral, (i) owes payment or other performance of the
 
 2 obligation, (ii) has provided property other than the collateral
 
 3 to secure payment or other performance of the obligation, or
 
 4 (iii) is otherwise accountable in whole or in part for payment or
 
 5 other performance of the obligation.  The term does not include
 
 6 issuers or nominated persons under a letter of credit.
 
 7      "Original debtor" means a person that, as debtor, entered
 
 8 into a security agreement to which a new debtor has become bound
 
 9 under section 490:9-203(d).
 
10      "Payment intangible" means a general intangible under which
 
11 the account debtor's principal obligation is a monetary
 
12 obligation.
 
13      "Person related to", with respect to an individual, means:
 
14      (1)  The spouse of the individual;
 
15      (2)  A brother, brother-in-law, sister, or sister-in-law of
 
16           the individual;
 
17      (3)  An ancestor or lineal descendant of the individual or
 
18           the individual's spouse; or
 
19      (4)  Any other relative, by blood or marriage, of the
 
20           individual or the individual's spouse who shares the
 
21           same home with the individual.
 
22      "Person related to", with respect to an organization, means:
 
23      (1)  A person directly or indirectly controlling, controlled
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           by, or under common control with the organization;
 
 2      (2)  An officer or director of, or a person performing
 
 3           similar functions with respect to, the organization;
 
 4      (3)  An officer or director of, or a person performing
 
 5           similar functions with respect to, a person described
 
 6           in paragraph (1);
 
 7      (4)  The spouse of an individual described in paragraph (1),
 
 8           (2), or (3); or
 
 9      (5)  An individual who is related by blood or marriage to an
 
10           individual described in paragraph (1), (2), (3), or (4)
 
11           and shares the same home with the individual.
 
12      "Proceeds" means the following property:
 
13      (1)  Whatever is acquired upon the sale, lease, license,
 
14           exchange, or other disposition of collateral;
 
15      (2)  Whatever is collected on, or distributed on account of,
 
16           collateral;
 
17      (3)  Rights arising out of collateral;
 
18      (4)  To the extent of the value of collateral, claims
 
19           arising out of the loss, nonconformity, or interference
 
20           with the use of, defects or infringement of rights in,
 
21           or damage to, the collateral; or
 
22      (5)  To the extent of the value of collateral and to the
 
23           extent payable to the debtor or the secured party,
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           insurance payable by reason of the loss or
 
 2           nonconformity of, defects or infringement of rights in,
 
 3           or damage to, the collateral.
 
 4      "Promissory note" means an instrument that evidences a
 
 5 promise to pay a monetary obligation, does not evidence an order
 
 6 to pay, and does not contain an acknowledgment by a bank that the
 
 7 bank has received for deposit a sum of money or funds.
 
 8      "Proposal" means a record authenticated by a secured party
 
 9 which includes the terms on which the secured party is willing to
 
10 accept collateral in full or partial satisfaction of the
 
11 obligation it secures pursuant to sections 490:9-620, 490:9-621,
 
12 and 490:9-622.
 
13      "Public-finance transaction" means a secured transaction in
 
14 connection with which:
 
15      (1)  Debt securities are issued;
 
16      (2)  All or a portion of the securities issued have an
 
17           initial stated maturity of at least twenty years; and
 
18      (3)  The debtor, obligor, secured party, account debtor or
 
19           other person obligated on collateral, assignor or
 
20           assignee of a secured obligation, or assignor or
 
21           assignee of a security interest is a state or a
 
22           governmental unit of a state.
 
23      "Pursuant to commitment", with respect to an advance made or
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 other value given by a secured party, means pursuant to the
 
 2 secured party's obligation, whether or not a subsequent event of
 
 3 default or other event not within the secured party's control has
 
 4 relieved or may relieve the secured party from its obligation.
 
 5      "Record", except as used in "for record", "of record",
 
 6 "record or legal title", and "record owner", means information
 
 7 that is inscribed on a tangible medium or which is stored in an
 
 8 electronic or other medium and is retrievable in perceivable
 
 9 form.
 
10      "Registered organization" means an organization organized
 
11 solely under the law of a single state or the United States and
 
12 as to which the state or the United States must maintain a public
 
13 record showing the organization to have been organized.
 
14      "Secondary obligor" means an obligor to the extent that:
 
15      (1)  The obligor's obligation is secondary; or
 
16      (2)  The obligor has a right of recourse with respect to an
 
17           obligation secured by collateral against the debtor,
 
18           another obligor, or property of either.
 
19      "Secured party" means:
 
20      (1)  A person in whose favor a security interest is created
 
21           or provided for under a security agreement, whether or
 
22           not any obligation to be secured is outstanding;
 
23      (2)  A person that holds an agricultural lien;
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (3)  A consignor;
 
 2      (4)  A person to which accounts, chattel paper, payment
 
 3           intangibles, or promissory notes have been sold;
 
 4      (5)  A trustee, indenture trustee, agent, collateral agent,
 
 5           or other representative in whose favor a security
 
 6           interest or agricultural lien is created or provided
 
 7           for; or
 
 8      (6)  A person that holds a security interest arising under
 
 9           section 490:2-401, 490:2-505, 490:2-711(3),
 
10           490:2A-508(e), 490:4-210, or 490:5-118.
 
11      "Security agreement" means an agreement that creates or
 
12 provides for a security interest.
 
13      "Send", in connection with a record or notification, means:
 
14      (1)  To deposit in the mail, deliver for transmission, or
 
15           transmit by any other usual means of communication,
 
16           with postage or cost of transmission provided for,
 
17           addressed to any address reasonable under the
 
18           circumstances; or
 
19      (2)  To cause the record or notification to be received
 
20           within the time that it would have been received if
 
21           properly sent under paragraph (1).
 
22      "Software" means a computer program and any supporting
 
23 information provided in connection with a transaction relating to
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 the program.  The term does not include a computer program that
 
 2 is included in the definition of goods.
 
 3      "State" means a state of the United States, the District of
 
 4 Columbia, Puerto Rico, the United States Virgin Islands, or any
 
 5 territory or insular possession subject to the jurisdiction of
 
 6 the United States.
 
 7      "Supporting obligation" means a letter-of-credit right or
 
 8 secondary obligation that supports the payment or performance of
 
 9 an account, chattel paper, a document, a general intangible, an
 
10 instrument, or investment property.
 
11      "Tangible chattel paper" means chattel paper evidenced by a
 
12 record or records consisting of information that is inscribed on
 
13 a tangible medium.
 
14      "Termination statement" means an amendment of a financing
 
15 statement which:
 
16      (1)  Identifies, by its file number, the initial financing
 
17           statement to which it relates; and
 
18      (2)  Indicates either that it is a termination statement or
 
19           that the identified financing statement is no longer
 
20           effective.
 
21      "Transmitting utility" means a person primarily engaged in
 
22 the business of:
 
23      (1)  Operating a railroad, subway, street railway, or
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           trolley bus;
 
 2      (2)  Transmitting communications electrically,
 
 3           electromagnetically, or by light;
 
 4      (3)  Transmitting goods by pipeline or sewer; or
 
 5      (4)  Transmitting or producing and transmitting electricity,
 
 6           steam, gas, or water.
 
 7      (b)  The following definitions in other articles apply to
 
 8 this article:
 
 9      "Applicant".  Section 490:5-102.
 
10      "Beneficiary".  Section 490:5-102.
 
11      "Broker".  Section 490:8-102.
 
12      "Certificated security".  Section 490:8-102.
 
13      "Check".  Section 490:3-104.
 
14      "Clearing corporation".  Section 490:8-102.
 
15      "Contract for sale".  Section 490:2-106.
 
16      "Customer".  Section 490:4-104.
 
17      "Entitlement holder".  Section 490:8-102.
 
18      "Financial asset".  Section 490:8-102.
 
19      "Holder in due course".  Section 490:3-302.
 
20      "Issuer" (with respect to a letter of credit or letter-of-
 
21 credit right).  Section 490:5-102.
 
22      "Issuer" (with respect to a security).  Section 490:8-201.
 
23      "Lease".  Section 490:2A-103.
 

 
Page 23                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      "Lease agreement".  Section 490:2A-103.
 
 2      "Lease contract".  Section 490:2A-103.
 
 3      "Leasehold interest".  Section 490:2A-103.
 
 4      "Lessee".  Section 490:2A-103.
 
 5      "Lessee in ordinary course of business".  Section
 
 6 490:2A-103.
 
 7      "Lessor".  Section 490:2A-103.
 
 8      "Lessor's residual interest".  Section 490:2A-103.
 
 9      "Letter of credit".  Section 490:5-102.
 
10      "Merchant".  Section 490:2-104.
 
11      "Negotiable instrument".  Section 490:3-104.
 
12      "Nominated person".  Section 490:5-102.
 
13      "Note".  Section 490:3-104.
 
14      "Proceeds of a letter of credit".  Section 490:5-114.
 
15      "Prove".  Section 490:3-103.
 
16      "Sale".  Section 490:2-106.
 
17      "Securities account".  Section 490:8-501.
 
18      "Securities intermediary".  Section 490:8-102.
 
19      "Security".  Section 490:8-102.
 
20      "Security certificate".  Section 490:8-102.
 
21      "Security entitlement".  Section 490:8-102.
 
22      "Uncertificated security".  Section 490:8-102.
 
23      (c)  Article 1 contains general definitions and principles
 

 
Page 24                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 of construction and interpretation applicable throughout this
 
 2 article.
 
 3      490:9-103  Purchase-money security interest; application of
 
 4 payments; burden of establishing.(a)  In this section:
 
 5      (1)  "Purchase-money collateral" means goods or software
 
 6           that secures a purchase-money obligation incurred with
 
 7           respect to that collateral; and
 
 8      (2)  "Purchase-money obligation" means an obligation of an
 
 9           obligor incurred as all or part of the price of the
 
10           collateral or for value given to enable the debtor to
 
11           acquire rights in or the use of the collateral if the
 
12           value is in fact so used.
 
13      (b)  A security interest in goods is a purchase-money
 
14 security interest:
 
15      (1)  To the extent that the goods are purchase-money
 
16           collateral with respect to that security interest;
 
17      (2)  If the security interest is in inventory that is or was
 
18           purchase-money collateral, also to the extent that the
 
19           security interest secures a purchase-money obligation
 
20           incurred with respect to other inventory in which the
 
21           secured party holds or held a purchase-money security
 
22           interest; and
 
23      (3)  Also to the extent that the security interest secures a
 

 
Page 25                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           purchase-money obligation incurred with respect to
 
 2           software in which the secured party holds or held a
 
 3           purchase-money security interest.
 
 4      (c)  A security interest in software is a purchase-money
 
 5 security interest to the extent that the security interest also
 
 6 secures a purchase-money obligation incurred with respect to
 
 7 goods in which the secured party holds or held a purchase-money
 
 8 security interest if:
 
 9      (1)  The debtor acquired its interest in the software in an
 
10           integrated transaction in which it acquired an interest
 
11           in the goods; and
 
12      (2)  The debtor acquired its interest in the software for
 
13           the principal purpose of using the software in the
 
14           goods.
 
15      (d)  The security interest of a consignor in goods that are
 
16 the subject of a consignment is a purchase-money security
 
17 interest in inventory.
 
18      (e)  In a transaction other than a consumer-goods
 
19 transaction, if the extent to which a security interest is a
 
20 purchase-money security interest depends on the application of a
 
21 payment to a particular obligation, the payment must be applied:
 
22      (1)  In accordance with any reasonable method of application
 
23           to which the parties agree;
 

 
Page 26                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (2)  In the absence of the parties' agreement to a
 
 2           reasonable method, in accordance with any intention of
 
 3           the obligor manifested at or before the time of
 
 4           payment; or
 
 5      (3)  In the absence of an agreement to a reasonable method
 
 6           and a timely manifestation of the obligor's intention,
 
 7           in the following order:
 
 8           (A)  To obligations that are not secured; and
 
 9           (B)  If more than one obligation is secured, to
 
10                obligations secured by purchase-money security
 
11                interests in the order in which those obligations
 
12                were incurred.
 
13      (f)  In a transaction other than a consumer-goods
 
14 transaction, a purchase-money security interest does not lose its
 
15 status as such, even if:
 
16      (1)  The purchase-money collateral also secures an
 
17           obligation that is not a purchase-money obligation;
 
18      (2)  Collateral that is not purchase-money collateral also
 
19           secures the purchase-money obligation; or
 
20      (3)  The purchase-money obligation has been renewed,
 
21           refinanced, consolidated, or restructured.
 
22      (g)  In a transaction other than a consumer-goods
 
23 transaction, a secured party claiming a purchase-money security
 

 
Page 27                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 interest has the burden of establishing the extent to which the
 
 2 security interest is a purchase-money security interest.
 
 3      (h)  The limitation of the rules in subsections (e), (f),
 
 4 and (g) to transactions other than consumer-goods transactions is
 
 5 intended to leave to the court the determination of the proper
 
 6 rules in consumer-goods transactions.  The court may not infer
 
 7 from that limitation the nature of the proper rule in consumer-
 
 8 goods transactions and may continue to apply established
 
 9 approaches.
 
10      490:9-104  Control of deposit account.(a)  A secured
 
11 party has control of a deposit account if:
 
12      (1)  The secured party is the bank with which the deposit
 
13           account is maintained;
 
14      (2)  The debtor, secured party, and bank have agreed in an
 
15           authenticated record that the bank will comply with
 
16           instructions originated by the secured party directing
 
17           disposition of the funds in the account without further
 
18           consent by the debtor; or
 
19      (3)  The secured party becomes the bank's customer with
 
20           respect to the deposit account.
 
21      (b)  A secured party that has satisfied subsection (a) has
 
22 control, even if the debtor retains the right to direct the
 
23 disposition of funds from the deposit account.
 

 
Page 28                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      490:9-105  Control of electronic chattel paper.  A secured
 
 2 party has control of electronic chattel paper if the record or
 
 3 records comprising the chattel paper are created, stored, and
 
 4 assigned in such a manner that:
 
 5      (1)  A single authoritative copy of the record or records
 
 6           exists which is unique, identifiable and, except as
 
 7           otherwise provided in paragraphs (4), (5), and (6),
 
 8           unalterable;
 
 9      (2)  The authoritative copy identifies the secured party as
 
10           the assignee of the record or records;
 
11      (3)  The authoritative copy is communicated to and
 
12           maintained by the secured party or its designated
 
13           custodian;
 
14      (4)  Copies or revisions that add or change an identified
 
15           assignee of the authoritative copy can be made only
 
16           with the participation of the secured party;
 
17      (5)  Each copy of the authoritative copy and any copy of a
 
18           copy is readily identifiable as a copy that is not the
 
19           authoritative copy; and
 
20      (6)  Any revision of the authoritative copy is readily
 
21           identifiable as an authorized or unauthorized revision.
 
22      490:9-106  Control of investment property.(a)  A person
 
23 has control of a certificated security, uncertificated security,
 

 
Page 29                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 or security entitlement as provided in section 490:8-106.
 
 2      (b)  A secured party has control of a commodity contract if:
 
 3      (1)  The secured party is the commodity intermediary with
 
 4           which the commodity contract is carried; or
 
 5      (2)  The commodity customer, secured party, and commodity
 
 6           intermediary have agreed that the commodity
 
 7           intermediary will apply any value distributed on
 
 8           account of the commodity contract as directed by the
 
 9           secured party without further consent by the commodity
 
10           customer.
 
11      (c)  A secured party having control of all security
 
12 entitlements or commodity contracts carried in a securities
 
13 account or commodity account has control over the securities
 
14 account or commodity account.
 
15      490:9-107  Control of letter-of-credit right.  A secured
 
16 party has control of a letter-of-credit right to the extent of
 
17 any right to payment or performance by the issuer or any
 
18 nominated person if the issuer or nominated person has consented
 
19 to an assignment of proceeds of the letter of credit under
 
20 section 490:5-114(c) or otherwise applicable law or practice.
 
21      490:9-108  Sufficiency of description.  (a)  Except as
 
22 otherwise provided in subsections (c), (d), and (e), a
 
23 description of personal or real property is sufficient, whether
 

 
Page 30                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 or not it is specific, if it reasonably identifies what is
 
 2 described.
 
 3      (b)  Except as otherwise provided in subsection (d), a
 
 4 description of collateral reasonably identifies the collateral if
 
 5 it identifies the collateral by:
 
 6      (1)  Specific listing;
 
 7      (2)  Category;
 
 8      (3)  Except as otherwise provided in subsection (e), a type
 
 9           of collateral defined in this chapter;
 
10      (4)  Quantity;
 
11      (5)  Computational or allocational formula or procedure; or
 
12      (6)  Except as otherwise provided in subsection (c), any
 
13           other method, if the identity of the collateral is
 
14           objectively determinable.
 
15      (c)  A description of collateral as "all the debtor's
 
16 assets" or "all the debtor's personal property" or using words of
 
17 similar import does not reasonably identify the collateral.
 
18      (d)  Except as otherwise provided in subsection (e), a
 
19 description of a security entitlement, securities account, or
 
20 commodity account is sufficient if it describes:
 
21      (1)  The collateral by those terms or as investment
 
22           property; or
 
23      (2)  The underlying financial asset or commodity contract.
 

 
Page 31                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (e)  A description only by type of collateral defined in
 
 2 this chapter is an insufficient description of:
 
 3      (1)  A commercial tort claim; or
 
 4      (2)  In a consumer transaction, consumer goods, a security
 
 5           entitlement, a securities account, or a commodity
 
 6           account.
 
 7               SUBPART 2.  APPLICABILITY OF ARTICLE
 
 8      490:9-109  Scope.  (a)  Except as otherwise provided in
 
 9 subsections (c) and (d), this article applies to:
 
10      (1)  A transaction, regardless of its form, that creates a
 
11           security interest in personal property or fixtures by
 
12           contract;
 
13      (2)  An agricultural lien;
 
14      (3)  A sale of accounts, chattel paper, payment intangibles,
 
15           or promissory notes;
 
16      (4)  A consignment;
 
17      (5)  A security interest arising under section 490:2-401,
 
18           490:2-505, 490:2-711(3), or 490:2A-508(e), as provided
 
19           in section 490:9-110; and
 
20      (6)  A security interest arising under section 490:4-210 or
 
21           490:5-118.
 
22      (b)  The application of this article to a security interest
 
23 in a secured obligation is not affected by the fact that the
 

 
Page 32                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 obligation is itself secured by a transaction or interest to
 
 2 which this article does not apply.
 
 3      (c)  This article does not apply to the extent that:
 
 4      (1)  A statute, regulation, or treaty of the United States
 
 5           preempts this article;
 
 6      (2)  Another statute of this State expressly governs the
 
 7           creation, perfection, priority, or enforcement of a
 
 8           security interest created by this State or a
 
 9           governmental unit of this State;
 
10      (3)  A statute of another state, a foreign country, or a
 
11           governmental unit of another state or a foreign
 
12           country, other than a statute generally applicable to
 
13           security interests, expressly governs creation,
 
14           perfection, priority, or enforcement of a security
 
15           interest created by the state, country, or governmental
 
16           unit; or
 
17      (4)  The rights of a transferee beneficiary or nominated
 
18           person under a letter of credit are independent and
 
19           superior under section 490:5-114.
 
20      (d)  This article does not apply to:
 
21      (1)  A landlord's lien, other than an agricultural lien;
 
22      (2)  A lien, other than an agricultural lien, given by
 
23           statute or other rule of law for services or materials,
 

 
Page 33                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           but section 490:9-333 applies with respect to priority
 
 2           of the lien;
 
 3      (3)  An assignment of a claim for wages, salary, or other
 
 4           compensation of an employee;
 
 5      (4)  A sale of accounts, chattel paper, payment intangibles,
 
 6           or promissory notes as part of a sale of the business
 
 7           out of which they arose;
 
 8      (5)  An assignment of accounts, chattel paper, payment
 
 9           intangibles, or promissory notes which is for the
 
10           purpose of collection only;
 
11      (6)  An assignment of a right to payment under a contract to
 
12           an assignee that is also obligated to perform under the
 
13           contract;
 
14      (7)  An assignment of a single account, payment intangible,
 
15           or promissory note to an assignee in full or partial
 
16           satisfaction of a preexisting indebtedness;
 
17      (8)  A transfer of an interest in or an assignment of a
 
18           claim under a policy of insurance, other than an
 
19           assignment by or to a health-care provider of a health-
 
20           care-insurance receivable and any subsequent assignment
 
21           of the right to payment, but sections 490:9-315 and
 
22           490:9-322 apply with respect to proceeds and priorities
 
23           in proceeds;
 

 
Page 34                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (9)  An assignment of a right represented by a judgment,
 
 2           other than a judgment taken on a right to payment that
 
 3           was collateral;
 
 4     (10)  A right of recoupment or set-off, but:
 
 5           (A)  Section 490:9-340 applies with respect to the
 
 6                effectiveness of rights of recoupment or set-off
 
 7                against deposit accounts; and
 
 8           (B)  Section 490:9-404 applies with respect to defenses
 
 9                or claims of an account debtor;
 
10     (11)  The creation or transfer of an interest in or lien on
 
11           real property, including a lease or rents thereunder,
 
12           except to the extent that provision is made for:
 
13           (A)  Liens on real property in sections 490:9-203 and
 
14                490:9-308;
 
15           (B)  Fixtures in section 490:9-334;
 
16           (C)  Fixture filings in sections 490:9-501, 490:9-502,
 
17                490:9-512, 490:9-516, and 490:9-519; and
 
18           (D)  Security agreements covering personal and real
 
19                property in section 490:9-604;
 
20     (12)  An assignment of a claim arising in tort, other than a
 
21           commercial tort claim, but sections 490:9-315 and
 
22           490:9-322 apply with respect to proceeds and priorities
 
23           in proceeds; or
 

 
Page 35                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1     (13)  An assignment of a deposit account in a consumer
 
 2           transaction, but sections 490:9-315 and 490:9-322 apply
 
 3           with respect to proceeds and priorities in proceeds.
 
 4      490:9-110  Security interests arising under Article 2 or
 
 5 2A.  A security interest arising under section 490:2-401,
 
 6 490:2-505, 490:2-711(3), or 490:2A-508(e) is subject to this
 
 7 article.  However, until the debtor obtains possession of the
 
 8 goods:
 
 9      (1)  The security interest is enforceable, even if section
 
10           490:9-203(b)(3) has not been satisfied;
 
11      (2)  Filing is not required to perfect the security
 
12           interest;
 
13      (3)  The rights of the secured party after default by the
 
14           debtor are governed by Article 2 or 2A; and
 
15      (4)  The security interest has priority over a conflicting
 
16           security interest created by the debtor.
 
17           PART 2. EFFECTIVENESS OF SECURITY AGREEMENT;
 
18                 ATTACHMENT OF SECURITY INTEREST;
 
19              RIGHTS OF PARTIES TO SECURITY AGREEMENT
 
20             SUBPART 1.  EFFECTIVENESS AND ATTACHMENT
 
21      490:9-201  General effectiveness of security agreement.
 
22 (a)  Except as otherwise provided in this chapter, a security
 
23 agreement is effective according to its terms between the
 

 
Page 36                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 parties, against purchasers of the collateral, and against
 
 2 creditors.
 
 3      (b)  A transaction subject to this article is subject to any
 
 4 applicable rule of law which establishes a different rule for
 
 5 consumers and (i) any other statute or regulation that regulates
 
 6 the rates, charges, agreements, and practices for loans, credit
 
 7 sales, or other extensions of credit and (ii) any consumer-
 
 8 protection statute or regulation.
 
 9      (c)  In case of conflict between this article and a rule of
 
10 law, statute, or regulation described in subsection (b), the rule
 
11 of law, statute, or regulation controls.  Failure to comply with
 
12 a statute or regulation described in subsection (b) has only the
 
13 effect the statute or regulation specifies.
 
14      (d)  This article does not:
 
15      (1)  Validate any rate, charge, agreement, or practice that
 
16           violates a rule of law, statute, or regulation
 
17           described in subsection (b); or
 
18      (2)  Extend the application of the rule of law, statute, or
 
19           regulation to a transaction not otherwise subject to
 
20           it.
 
21      490:9-202  Title to collateral immaterial.  Except as
 
22 otherwise provided with respect to consignments or sales of
 
23 accounts, chattel paper, payment intangibles, or promissory
 

 
Page 37                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 notes, the provisions of this article with regard to rights and
 
 2 obligations apply whether title to collateral is in the secured
 
 3 party or the debtor.
 
 4      490:9-203  Attachment and enforceability of security
 
 5 interest; proceeds; supporting obligations; formal requisites.
 
 6 (a)  A security interest attaches to collateral when it becomes
 
 7 enforceable against the debtor with respect to the collateral,
 
 8 unless an agreement expressly postpones the time of attachment.
 
 9      (b)  Except as otherwise provided in subsections (c) through
 
10 (i), a security interest is enforceable against the debtor and
 
11 third parties with respect to the collateral only if:
 
12      (1)  Value has been given;
 
13      (2)  The debtor has rights in the collateral or the power to
 
14           transfer rights in the collateral to a secured party;
 
15           and
 
16      (3)  One of the following conditions is met:
 
17           (A)  The debtor has authenticated a security agreement
 
18                that provides a description of the collateral and,
 
19                if the security interest covers timber to be cut,
 
20                a description of the land concerned;
 
21           (B)  The collateral is not a certificated security and
 
22                is in the possession of the secured party under
 
23                section 490:9-313 pursuant to the debtor's
 

 
Page 38                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1                security agreement;
 
 2           (C)  The collateral is a certificated security in
 
 3                registered form and the security certificate has
 
 4                been delivered to the secured party under section
 
 5                490:8-301 pursuant to the debtor's security
 
 6                agreement; or
 
 7           (D)  The collateral is deposit accounts, electronic
 
 8                chattel paper, investment property, or letter-of-
 
 9                credit rights, and the secured party has control
 
10                under section 490:9-104, 490:9-105, 490:9-106, or
 
11                490:9-107 pursuant to the debtor's security
 
12                agreement.
 
13      (c)  Subsection (b) is subject to section 490:4-210 on the
 
14 security interest of a collecting bank, section 490:5-118 on the
 
15 security interest of a letter-of-credit issuer or nominated
 
16 person, section 490:9-110 on a security interest arising under
 
17 Article 2 or 2A, and section 490:9-206 on security interests in
 
18 investment property.
 
19      (d)  A person becomes bound as debtor by a security
 
20 agreement entered into by another person if, by operation of law
 
21 other than this article or by contract:
 
22      (1)  The security agreement becomes effective to create a
 
23           security interest in the person's property; or
 

 
Page 39                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (2)  The person becomes generally obligated for the
 
 2           obligations of the other person, including the
 
 3           obligation secured under the security agreement, and
 
 4           acquires or succeeds to all or substantially all of the
 
 5           assets of the other person.
 
 6      (e)  If a new debtor becomes bound as debtor by a security
 
 7 agreement entered into by another person:
 
 8      (1)  The agreement satisfies subsection (b)(3) with respect
 
 9           to existing or after-acquired property of the new
 
10           debtor to the extent the property is described in the
 
11           agreement; and
 
12      (2)  Another agreement is not necessary to make a security
 
13           interest in the property enforceable.
 
14      (f)  The attachment of a security interest in collateral
 
15 gives the secured party the rights to proceeds provided by
 
16 section 490:9-315 and is also attachment of a security interest
 
17 in a supporting obligation for the collateral.
 
18      (g)  The attachment of a security interest in a right to
 
19 payment or performance secured by a security interest or other
 
20 lien on personal or real property is also attachment of a
 
21 security interest in the security interest, mortgage, or other
 
22 lien.
 
23      (h)  The attachment of a security interest in a securities
 

 
Page 40                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 account is also attachment of a security interest in the security
 
 2 entitlements carried in the securities account.
 
 3      (i)  The attachment of a security interest in a commodity
 
 4 account is also attachment of a security interest in the
 
 5 commodity contracts carried in the commodity account.
 
 6      490:9-204  After-acquired property; future advances.(a)
 
 7 Except as otherwise provided in subsection (b), a security
 
 8 agreement may create or provide for a security interest in after-
 
 9 acquired collateral.
 
10      (b)  A security interest does not attach under a term
 
11 constituting an after-acquired property clause to:
 
12      (1)  Consumer goods, other than an accession when given as
 
13           additional security, unless the debtor acquires rights
 
14           in them within ten days after the secured party gives
 
15           value; or
 
16      (2)  A commercial tort claim.
 
17      (c)  A security agreement may provide that collateral
 
18 secures, or that accounts, chattel paper, payment intangibles, or
 
19 promissory notes are sold in connection with, future advances or
 
20 other value, whether or not the advances or value are given
 
21 pursuant to commitment.
 
22      490:9-205  Use or disposition of collateral permissible.
 
23 (a)  A security interest is not invalid or fraudulent against
 

 
Page 41                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 creditors solely because:
 
 2      (1)  The debtor has the right or ability to:
 
 3           (A)  Use, commingle, or dispose of all or part of the
 
 4                collateral, including returned or repossessed
 
 5                goods;
 
 6           (B)  Collect, compromise, enforce, or otherwise deal
 
 7                with collateral;
 
 8           (C)  Accept the return of collateral or make
 
 9                repossessions; or
 
10           (D)  Use, commingle, or dispose of proceeds; or
 
11      (2)  The secured party fails to require the debtor to
 
12           account for proceeds or replace collateral.
 
13      (b)  This section does not relax the requirements of
 
14 possession if attachment, perfection, or enforcement of a
 
15 security interest depends upon possession of the collateral by
 
16 the secured party.
 
17      490:9-206  Security interest arising in purchase or
 
18 delivery of financial asset.(a)  A security interest in favor
 
19 of a securities intermediary attaches to a person's security
 
20 entitlement if:
 
21      (1)  The person buys a financial asset through the
 
22           securities intermediary in a transaction in which the
 
23           person is obligated to pay the purchase price to the
 

 
Page 42                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           securities intermediary at the time of the purchase;
 
 2           and
 
 3      (2)  The securities intermediary credits the financial asset
 
 4           to the buyer's securities account before the buyer pays
 
 5           the securities intermediary.
 
 6      (b)  The security interest described in subsection (a)
 
 7 secures the person's obligation to pay for the financial asset.
 
 8      (c)  A security interest in favor of a person that delivers
 
 9 a certificated security or other financial asset represented by a
 
10 writing attaches to the security or other financial asset if:
 
11      (1)  The security or other financial asset:
 
12           (A)  In the ordinary course of business is transferred
 
13                by delivery with any necessary indorsement or
 
14                assignment; and
 
15           (B)  Is delivered under an agreement between persons in
 
16                the business of dealing with such securities or
 
17                financial assets; and
 
18      (2)  The agreement calls for delivery against payment.
 
19      (d)  The security interest described in subsection (c)
 
20 secures the obligation to make payment for the delivery.
 
21                   SUBPART 2.  RIGHTS AND DUTIES
 
22      490:9-207  Rights and duties of secured party having
 
23 possession or control of collateral.(a)  Except as otherwise
 

 
Page 43                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 provided in subsection (d), a secured party shall use reasonable
 
 2 care in the custody and preservation of collateral in the secured
 
 3 party's possession.  In the case of chattel paper or an
 
 4 instrument, reasonable care includes taking necessary steps to
 
 5 preserve rights against prior parties unless otherwise agreed.
 
 6      (b)  Except as otherwise provided in subsection (d), if a
 
 7 secured party has possession of collateral:
 
 8      (1)  Reasonable expenses, including the cost of insurance
 
 9           and payment of taxes or other charges, incurred in the
 
10           custody, preservation, use, or operation of the
 
11           collateral are chargeable to the debtor and are secured
 
12           by the collateral;
 
13      (2)  The risk of accidental loss or damage is on the debtor
 
14           to the extent of a deficiency in any effective
 
15           insurance coverage;
 
16      (3)  The secured party shall keep the collateral
 
17           identifiable, but fungible collateral may be
 
18           commingled; and
 
19      (4)  The secured party may use or operate the collateral:
 
20           (A)  For the purpose of preserving the collateral or
 
21                its value;
 
22           (B)  As permitted by an order of a court having
 
23                competent jurisdiction; or
 

 
Page 44                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           (C)  Except in the case of consumer goods, in the
 
 2                manner and to the extent agreed by the debtor.
 
 3      (c)  Except as otherwise provided in subsection (d), a
 
 4 secured party having possession of collateral or control of
 
 5 collateral under section 490:9-104, 490:9-105, 490:9-106, or
 
 6 490:9-107:
 
 7      (1)  May hold as additional security any proceeds, except
 
 8           money or funds, received from the collateral;
 
 9      (2)  Shall apply money or funds received from the collateral
 
10           to reduce the secured obligation, unless remitted to
 
11           the debtor; and
 
12      (3)  May create a security interest in the collateral.
 
13      (d)  If the secured party is a buyer of accounts, chattel
 
14 paper, payment intangibles, or promissory notes or a consignor:
 
15      (1)  Subsection (a) does not apply unless the secured party
 
16           is entitled under an agreement:
 
17           (A)  To charge back uncollected collateral; or
 
18           (B)  Otherwise to full or limited recourse against the
 
19                debtor or a secondary obligor based on the
 
20                nonpayment or other default of an account debtor
 
21                or other obligor on the collateral; and
 
22      (2)  Subsections (b) and (c) do not apply.
 
23      490:9-208  Additional duties of secured party having
 

 


 

Page 45                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 control of collateral.(a)  This section applies to cases in
 
 2 which there is no outstanding secured obligation and the secured
 
 3 party is not committed to make advances, incur obligations, or
 
 4 otherwise give value.
 
 5      (b)  Within ten days after receiving an authenticated demand
 
 6 by the debtor:
 
 7      (1)  A secured party having control of a deposit account
 
 8           under section 490:9-104(a)(2) shall send to the bank
 
 9           with which the deposit account is maintained an
 
10           authenticated statement that releases the bank from any
 
11           further obligation to comply with instructions
 
12           originated by the secured party;
 
13      (2)  A secured party having control of a deposit account
 
14           under section 490:9-104(a)(3) shall:
 
15           (A)  Pay the debtor the balance on deposit in the
 
16                deposit account; or
 
17           (B)  Transfer the balance on deposit into a deposit
 
18                account in the debtor's name;
 
19      (3)  A secured party, other than a buyer, having control of
 
20           electronic chattel paper under section 490:9-105 shall:
 
21           (A)  Communicate the authoritative copy of the
 
22                electronic chattel paper to the debtor or its
 
23                designated custodian;
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           (B)  If the debtor designates a custodian that is the
 
 2                designated custodian with which the authoritative
 
 3                copy of the electronic chattel paper is maintained
 
 4                for the secured party, communicate to the
 
 5                custodian an authenticated record releasing the
 
 6                designated custodian from any further obligation
 
 7                to comply with instructions originated by the
 
 8                secured party and instructing the custodian to
 
 9                comply with instructions originated by the debtor;
 
10                and
 
11           (C)  Take appropriate action to enable the debtor or
 
12                its designated custodian to make copies of or
 
13                revisions to the authoritative copy which add or
 
14                change an identified assignee of the authoritative
 
15                copy without the consent of the secured party;
 
16      (4)  A secured party having control of investment property
 
17           under section 490:8-106(d)(2) or 490:9-106(b) shall
 
18           send to the securities intermediary or commodity
 
19           intermediary with which the security entitlement or
 
20           commodity contract is maintained an authenticated
 
21           record that releases the securities intermediary or
 
22           commodity intermediary from any further obligation to
 
23           comply with entitlement orders or directions originated
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           by the secured party; and
 
 2      (5)  A secured party having control of a letter-of-credit
 
 3           right under section 490:9-107 shall send to each person
 
 4           having an unfulfilled obligation to pay or deliver
 
 5           proceeds of the letter of credit to the secured party
 
 6           an authenticated release from any further obligation to
 
 7           pay or deliver proceeds of the letter of credit to the
 
 8           secured party.
 
 9      490:9-209  Duties of secured party if account debtor has
 
10 been notified of assignment.(a)  Except as otherwise provided
 
11 in subsection (c), this section applies if:
 
12      (1)  There is no outstanding secured obligation; and
 
13      (2)  The secured party is not committed to make advances,
 
14           incur obligations, or otherwise give value.
 
15      (b)  Within ten days after receiving an authenticated demand
 
16 by the debtor, a secured party shall send to an account debtor
 
17 that has received notification of an assignment to the secured
 
18 party as assignee under section 490:9-406(a) an authenticated
 
19 record that releases the account debtor from any further
 
20 obligation to the secured party.
 
21      (c)  This section does not apply to an assignment
 
22 constituting the sale of an account, chattel paper, or payment
 
23 intangible.
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      490:9-210  Request for accounting; request regarding list
 
 2 of collateral or statement of account.(a)  In this section:
 
 3      (1)  "Request" means a record of a type described in
 
 4           paragraph (2), (3), or (4).
 
 5      (2)  "Request for an accounting" means a record
 
 6           authenticated by a debtor requesting that the recipient
 
 7           provide an accounting of the unpaid obligations secured
 
 8           by collateral and reasonably identifying the
 
 9           transaction or relationship that is the subject of the
 
10           request.
 
11      (3)  "Request regarding a list of collateral" means a record
 
12           authenticated by a debtor requesting that the recipient
 
13           approve or correct a list of what the debtor believes
 
14           to be the collateral securing an obligation and
 
15           reasonably identifying the transaction or relationship
 
16           that is the subject of the request.
 
17      (4)  "Request regarding a statement of account" means a
 
18           record authenticated by a debtor requesting that the
 
19           recipient approve or correct a statement indicating
 
20           what the debtor believes to be the aggregate amount of
 
21           unpaid obligations secured by collateral as of a
 
22           specified date and reasonably identifying the
 
23           transaction or relationship that is the subject of the
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           request.
 
 2      (b)  Subject to subsections (c), (d), (e), and (f), a
 
 3 secured party, other than a buyer of accounts, chattel paper,
 
 4 payment intangibles, or promissory notes or a consignor, shall
 
 5 comply with a request within fourteen days after receipt:
 
 6      (1)  In the case of a request for an accounting, by
 
 7           authenticating and sending to the debtor an accounting;
 
 8           and
 
 9      (2)  In the case of a request regarding a list of collateral
 
10           or a request regarding a statement of account, by
 
11           authenticating and sending to the debtor an approval or
 
12           correction.
 
13      (c)  A secured party that claims a security interest in all
 
14 of a particular type of collateral owned by the debtor may comply
 
15 with a request regarding a list of collateral by sending to the
 
16 debtor an authenticated record including a statement to that
 
17 effect within fourteen days after receipt.
 
18      (d)  A person that receives a request regarding a list of
 
19 collateral, claims no interest in the collateral when it receives
 
20 the request, and claimed an interest in the collateral at an
 
21 earlier time shall comply with the request within fourteen days
 
22 after receipt by sending to the debtor an authenticated record:
 
23      (1)  Disclaiming any interest in the collateral; and
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (2)  If known to the recipient, providing the name and
 
 2           mailing address of any assignee of or successor to the
 
 3           recipient's security interest in the collateral.
 
 4      (e)  A person that receives a request for an accounting or a
 
 5 request regarding a statement of account, claims no interest in
 
 6 the obligations when it receives the request, and claimed an
 
 7 interest in the obligations at an earlier time shall comply with
 
 8 the request within fourteen days after receipt by sending to the
 
 9 debtor an authenticated record:
 
10      (1)  Disclaiming any interest in the obligations; and
 
11      (2)  If known to the recipient, providing the name and
 
12           mailing address of any assignee of or successor to the
 
13           recipient's interest in the obligations.
 
14      (f)  A debtor is entitled without charge to one response to
 
15 a request under this section during any six-month period.  The
 
16 secured party may require payment of a charge not exceeding $25
 
17 for each additional response.
 
18                 PART 3.  PERFECTION AND PRIORITY
 
19         SUBPART 1.  LAW GOVERNING PERFECTION AND PRIORITY
 
20      490:9-301  Law governing perfection and priority of
 
21 security interests.  Except as otherwise provided in sections
 
22 490:9-303 through 490:9-306, the following rules determine the
 
23 law governing perfection, the effect of perfection or
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 nonperfection, and the priority of a security interest in
 
 2 collateral:
 
 3      (1)  Except as otherwise provided in this section, while a
 
 4           debtor is located in a jurisdiction, the local law of
 
 5           that jurisdiction governs perfection, the effect of
 
 6           perfection or nonperfection, and the priority of a
 
 7           security interest in collateral.
 
 8      (2)  While collateral is located in a jurisdiction, the
 
 9           local law of that jurisdiction governs perfection, the
 
10           effect of perfection or nonperfection, and the priority
 
11           of a possessory security interest in that collateral.
 
12      (3)  Except as otherwise provided in paragraph (4), while
 
13           negotiable documents, goods, instruments, money, or
 
14           tangible chattel paper is located in a jurisdiction,
 
15           the local law of that jurisdiction governs:
 
16           (A)  Perfection of a security interest in the goods by
 
17                filing a fixture filing;
 
18           (B)  Perfection of a security interest in timber to be
 
19                cut; and
 
20           (C)  The effect of perfection or nonperfection and the
 
21                priority of a nonpossessory security interest in
 
22                the collateral.
 
23      (4)  The local law of the jurisdiction in which the wellhead
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           or minehead is located governs perfection, the effect
 
 2           of perfection or nonperfection, and the priority of a
 
 3           security interest in as-extracted collateral.
 
 4      490:9-302  Law governing perfection and priority of
 
 5 agricultural liens.  While farm products are located in a
 
 6 jurisdiction, the local law of that jurisdiction governs
 
 7 perfection, the effect of perfection or nonperfection, and the
 
 8 priority of an agricultural lien on the farm products.
 
 9      490:9-303  Law governing perfection and priority of
 
10 security interests in goods covered by a certificate of title.
 
11 (a)  This section applies to goods covered by a certificate of
 
12 title, even if there is no other relationship between the
 
13 jurisdiction under whose certificate of title the goods are
 
14 covered and the goods or the debtor.
 
15      (b)  Goods become covered by a certificate of title when a
 
16 valid application for the certificate of title and the applicable
 
17 fee are delivered to the appropriate authority.  Goods cease to
 
18 be covered by a certificate of title at the earlier of the time
 
19 the certificate of title ceases to be effective under the law of
 
20 the issuing jurisdiction or the time the goods become covered
 
21 subsequently by a certificate of title issued by another
 
22 jurisdiction.
 
23      (c)  The local law of the jurisdiction under whose
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 certificate of title the goods are covered governs perfection,
 
 2 the effect of perfection or nonperfection, and the priority of a
 
 3 security interest in goods covered by a certificate of title from
 
 4 the time the goods become covered by the certificate of title
 
 5 until the goods cease to be covered by the certificate of title.
 
 6      490:9-304  Law governing perfection and priority of
 
 7 security interests in deposit accounts.(a)  The local law of a
 
 8 bank's jurisdiction governs perfection, the effect of perfection
 
 9 or nonperfection, and the priority of a security interest in a
 
10 deposit account maintained with that bank.
 
11      (b)  The following rules determine a bank's jurisdiction for
 
12 purposes of this part:
 
13      (1)  If an agreement between the bank and the debtor
 
14           governing the deposit account expressly provides that a
 
15           particular jurisdiction is the bank's jurisdiction for
 
16           purposes of this part, this article, or this chapter,
 
17           that jurisdiction is the bank's jurisdiction.
 
18      (2)  If paragraph (1) does not apply and an agreement
 
19           between the bank and its customer governing the deposit
 
20           account expressly provides that the agreement is
 
21           governed by the law of a particular jurisdiction, that
 
22           jurisdiction is the bank's jurisdiction.
 
23      (3)  If neither paragraph (1) nor paragraph (2) applies and
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           an agreement between the bank and its customer
 
 2           governing the deposit account expressly provides that
 
 3           the deposit account is maintained at an office in a
 
 4           particular jurisdiction, that jurisdiction is the
 
 5           bank's jurisdiction.
 
 6      (4)  If none of the preceding paragraphs applies, the bank's
 
 7           jurisdiction is the jurisdiction in which the office
 
 8           identified in an account statement as the office
 
 9           serving the customer's account is located.
 
10      (5)  If none of the preceding paragraphs applies, the bank's
 
11           jurisdiction is the jurisdiction in which the chief
 
12           executive office of the bank is located.
 
13      490:9-305  Law governing perfection and priority of
 
14 security interests in investment property.(a)  Except as
 
15 otherwise provided in subsection (c), the following rules apply:
 
16      (1)  While a security certificate is located in a
 
17           jurisdiction, the local law of that jurisdiction
 
18           governs perfection, the effect of perfection or
 
19           nonperfection, and the priority of a security interest
 
20           in the certificated security represented thereby.
 
21      (2)  The local law of the issuer's jurisdiction as specified
 
22           in section 490:8-110(d) governs perfection, the effect
 
23           of perfection or nonperfection, and the priority of a
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           security interest in an uncertificated security.
 
 2      (3)  The local law of the securities intermediary's
 
 3           jurisdiction as specified in section 490:8-110(e)
 
 4           governs perfection, the effect of perfection or
 
 5           nonperfection, and the priority of a security interest
 
 6           in a security entitlement or securities account.
 
 7      (4)  The local law of the commodity intermediary's
 
 8           jurisdiction governs perfection, the effect of
 
 9           perfection or nonperfection, and the priority of a
 
10           security interest in a commodity contract or commodity
 
11           account.
 
12      (b)  The following rules determine a commodity
 
13 intermediary's jurisdiction for purposes of this part:
 
14      (1)  If an agreement between the commodity intermediary and
 
15           commodity customer governing the commodity account
 
16           expressly provides that a particular jurisdiction is
 
17           the commodity intermediary's jurisdiction for purposes
 
18           of this part, this article, or this chapter, that
 
19           jurisdiction is the commodity intermediary's
 
20           jurisdiction.
 
21      (2)  If paragraph (1) does not apply and an agreement
 
22           between the commodity intermediary and commodity
 
23           customer governing the commodity account expressly
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           provides that the agreement is governed by the law of a
 
 2           particular jurisdiction, that jurisdiction is the
 
 3           commodity intermediary's jurisdiction.
 
 4      (3)  If neither paragraph (1) nor paragraph (2) applies and
 
 5           an agreement between the commodity intermediary and
 
 6           commodity customer governing the commodity account
 
 7           expressly provides that the commodity account is
 
 8           maintained at an office in a particular jurisdiction,
 
 9           that jurisdiction is the commodity intermediary's
 
10           jurisdiction.
 
11      (4)  If none of the preceding paragraphs applies, the
 
12           commodity intermediary's jurisdiction is the
 
13           jurisdiction in which the office identified in an
 
14           account statement as the office serving the commodity
 
15           customer's account is located.
 
16      (5)  If none of the preceding paragraphs applies, the
 
17           commodity intermediary's jurisdiction is the
 
18           jurisdiction in which the chief executive office of the
 
19           commodity intermediary is located.
 
20      (c)  The local law of the jurisdiction in which the debtor
 
21 is located governs:
 
22      (1)  Perfection of a security interest in investment
 
23           property by filing;
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (2)  Automatic perfection of a security interest in
 
 2           investment property created by a broker or securities
 
 3           intermediary; and
 
 4      (3)  Automatic perfection of a security interest in a
 
 5           commodity contract or commodity account created by a
 
 6           commodity intermediary.
 
 7      490:9-306  Law governing perfection and priority of
 
 8 security interests in letter-of-credit rights.(a)  Subject to
 
 9 subsection (c), the local law of the issuer's jurisdiction or a
 
10 nominated person's jurisdiction governs perfection, the effect of
 
11 perfection or nonperfection, and the priority of a security
 
12 interest in a letter-of-credit right if the issuer's jurisdiction
 
13 or nominated person's jurisdiction is a state.
 
14      (b)  For purposes of this part, an issuer's jurisdiction or
 
15 nominated person's jurisdiction is the jurisdiction whose law
 
16 governs the liability of the issuer or nominated person with
 
17 respect to the letter-of-credit right as provided in section
 
18 490:5-116.
 
19      (c)  This section does not apply to a security interest that
 
20 is perfected only under section 490:9-308(d).
 
21      490:9-307  Location of debtor.  (a)  In this section,
 
22 "place of business" means a place where a debtor conducts its
 
23 affairs.
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (b)  Except as otherwise provided in this section, the
 
 2 following rules determine a debtor's location:
 
 3      (1)  A debtor who is an individual is located at the
 
 4           individual's principal residence.
 
 5      (2)  A debtor that is an organization and has only one place
 
 6           of business is located at its place of business.
 
 7      (3)  A debtor that is an organization and has more than one
 
 8           place of business is located at its chief executive
 
 9           office.
 
10      (c)  Subsection (b) applies only if a debtor's residence,
 
11 place of business, or chief executive office, as applicable, is
 
12 located in a jurisdiction whose law generally requires
 
13 information concerning the existence of a nonpossessory security
 
14 interest to be made generally available in a filing, recording,
 
15 or registration system as a condition or result of the security
 
16 interest's obtaining priority over the rights of a lien creditor
 
17 with respect to the collateral.  If subsection (b) does not
 
18 apply, the debtor is located in the District of Columbia.
 
19      (d)  A person that ceases to exist, have a residence, or
 
20 have a place of business continues to be located in the
 
21 jurisdiction specified by subsections (b) and (c).
 
22      (e)  A registered organization that is organized under the
 
23 law of a state is located in that state.
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (f)  Except as otherwise provided in subsection (i), a
 
 2 registered organization that is organized under the law of the
 
 3 United States and a branch or agency of a bank that is not
 
 4 organized under the law of the United States or a state are
 
 5 located:
 
 6      (1)  In the state that the law of the United States
 
 7           designates, if the law designates a state of location;
 
 8      (2)  In the state that the registered organization, branch,
 
 9           or agency designates, if the law of the United States
 
10           authorizes the registered organization, branch, or
 
11           agency to designate its state of location; or
 
12      (3)  In the District of Columbia, if neither paragraph (1)
 
13           nor paragraph (2) applies.
 
14      (g)  A registered organization continues to be located in
 
15 the jurisdiction specified by subsection (e) or (f)
 
16 notwithstanding:
 
17      (1)  The suspension, revocation, forfeiture, or lapse of the
 
18           registered organization's status as such in its
 
19           jurisdiction of organization; or
 
20      (2)  The dissolution, winding up, or cancellation of the
 
21           existence of the registered organization.
 
22      (h)  The United States is located in the District of
 
23 Columbia.
 

 
Page 60                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (i)  A branch or agency of a bank that is not organized
 
 2 under the law of the United States or a state is located in the
 
 3 state in which the branch or agency is licensed, if all branches
 
 4 and agencies of the bank are licensed in only one state.
 
 5      (j)  A foreign air carrier under the Federal Aviation Act of
 
 6 1958, as amended, is located at the designated office of the
 
 7 agent upon which service of process may be made on behalf of the
 
 8 carrier.
 
 9      (k)  This section applies only for purposes of this part.
 
10                      SUBPART 2.  PERFECTION
 
11      490:9-308  When security interest or agricultural lien is
 
12 perfected; continuity of perfection.(a)  Except as otherwise
 
13 provided in this section and section 490:9-309, a security
 
14 interest is perfected if it has attached and all of the
 
15 applicable requirements for perfection in sections 490:9-310
 
16 through 490:9-316 have been satisfied.  A security interest is
 
17 perfected when it attaches if the applicable requirements are
 
18 satisfied before the security interest attaches.
 
19      (b)  An agricultural lien is perfected if it has become
 
20 effective and all of the applicable requirements for perfection
 
21 in section 490:9-310 have been satisfied.  An agricultural lien
 
22 is perfected when it becomes effective if the applicable
 
23 requirements are satisfied before the agricultural lien becomes
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 effective.
 
 2      (c)  A security interest or agricultural lien is perfected
 
 3 continuously if it is originally perfected by one method under
 
 4 this article and is later perfected by another method under this
 
 5 article, without an intermediate period when it was unperfected.
 
 6      (d)  Perfection of a security interest in collateral also
 
 7 perfects a security interest in a supporting obligation for the
 
 8 collateral.
 
 9      (e)  Perfection of a security interest in a right to payment
 
10 or performance also perfects a security interest in a security
 
11 interest, mortgage, or other lien on personal or real property
 
12 securing the right.
 
13      (f)  Perfection of a security interest in a securities
 
14 account also perfects a security interest in the security
 
15 entitlements carried in the securities account.
 
16      (g)  Perfection of a security interest in a commodity
 
17 account also perfects a security interest in the commodity
 
18 contracts carried in the commodity account.
 
19      490:9-309  Security interest perfected upon attachment.
 
20 The following security interests are perfected when they attach:
 
21      (1)  A purchase-money security interest in consumer goods,
 
22           except as otherwise provided in section 490:9-311(b)
 
23           with respect to consumer goods that are subject to a
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           statute or treaty described in section 490:9-311(a);
 
 2      (2)  An assignment of accounts or payment intangibles which
 
 3           does not by itself or in conjunction with other
 
 4           assignments to the same assignee transfer a significant
 
 5           part of the assignor's outstanding accounts or payment
 
 6           intangibles;
 
 7      (3)  A sale of a payment intangible;
 
 8      (4)  A sale of a promissory note;
 
 9      (5)  A security interest created by the assignment of a
 
10           health-care-insurance receivable to the provider of the
 
11           health-care goods or services;
 
12      (6)  A security interest arising under section 490:2-401,
 
13           490:2-505, 490:2-711(3), or 490:2A-508(e), until the
 
14           debtor obtains possession of the collateral;
 
15      (7)  A security interest of a collecting bank arising under
 
16           section 490:4-210;
 
17      (8)  A security interest of an issuer or nominated person
 
18           arising under section 490:5-118;
 
19      (9)  A security interest arising in the delivery of a
 
20           financial asset under section 490:9-206(c);
 
21     (10)  A security interest in investment property created by a
 
22           broker or securities intermediary;
 
23     (11)  A security interest in a commodity contract or a
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           commodity account created by a commodity intermediary;
 
 2     (12)  An assignment for the benefit of all creditors of the
 
 3           transferor and subsequent transfers by the assignee
 
 4           thereunder; and
 
 5     (13)  A security interest created by an assignment of a
 
 6           beneficial interest in a decedent's estate.
 
 7      490:9-310  When filing required to perfect security
 
 8 interest or agricultural lien; security interests and
 
 9 agricultural liens to which filing provisions do not apply.(a)
 
10 Except as otherwise provided in subsection (b) and section
 
11 490:9-312(b), a financing statement must be filed to perfect all
 
12 security interests and agricultural liens.
 
13      (b)  The filing of a financing statement is not necessary to
 
14 perfect a security interest:
 
15      (1)  That is perfected under section 490:9-308(d), (e), (f),
 
16           or (g);
 
17      (2)  That is perfected under section 490:9-309 when it
 
18           attaches;
 
19      (3)  In property subject to a statute, regulation, or treaty
 
20           described in section 490:9-311(a);
 
21      (4)  In goods in possession of a bailee which is perfected
 
22           under section 490:9-312(d)(1) or (2);
 
23      (5)  In certificated securities, documents, goods, or
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           instruments which is perfected without filing or
 
 2           possession under section 490:9-312(e), (f), or (g);
 
 3      (6)  In collateral in the secured party's possession under
 
 4           section 490:9-313;
 
 5      (7)  In a certificated security which is perfected by
 
 6           delivery of the security certificate to the secured
 
 7           party under section 490:9-313;
 
 8      (8)  In deposit accounts, electronic chattel paper,
 
 9           investment property, or letter-of-credit rights which
 
10           is perfected by control under section 490:9-314;
 
11      (9)  In proceeds which is perfected under section 490:9-315;
 
12           or
 
13     (10)  That is perfected under section 490:9-316.
 
14      (c)  If a secured party assigns a perfected security
 
15 interest or agricultural lien, a filing under this article is not
 
16 required to continue the perfected status of the security
 
17 interest against creditors of and transferees from the original
 
18 debtor.
 
19      490:9-311  Perfection of security interests in property
 
20 subject to certain statutes, regulations, and treaties.(a)
 
21 Except as otherwise provided in subsection (d), the filing of a
 
22 financing statement is not necessary or effective to perfect a
 
23 security interest in property subject to:
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (1)  A statute, regulation, or treaty of the United States
 
 2           whose requirements for a security interest's obtaining
 
 3           priority over the rights of a lien creditor with
 
 4           respect to the property preempt section 490:9-310(a);
 
 5      (2)  Chapter 286; or
 
 6      (3)  A certificate-of-title statute of another jurisdiction
 
 7           which provides for a security interest to be indicated
 
 8           on the certificate as a condition or result of the
 
 9           security interest's obtaining priority over the rights
 
10           of a lien creditor with respect to the property.
 
11      (b)  Compliance with the requirements of a statute,
 
12 regulation, or treaty described in subsection (a) for obtaining
 
13 priority over the rights of a lien creditor is equivalent to the
 
14 filing of a financing statement under this article.  Except as
 
15 otherwise provided in subsection (d) and sections 490:9-313 and
 
16 490:9-316(d) and (e) for goods covered by a certificate of title,
 
17 a security interest in property subject to a statute, regulation,
 
18 or treaty described in subsection (a) may be perfected only by
 
19 compliance with those requirements, and a security interest so
 
20 perfected remains perfected notwithstanding a change in the use
 
21 or transfer of possession of the collateral.
 
22      (c)  Except as otherwise provided in subsection (d) and
 
23 section 490:9-316(d) and (e), duration and renewal of perfection
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 of a security interest perfected by compliance with the
 
 2 requirements prescribed by a statute, regulation, or treaty
 
 3 described in subsection (a) are governed by the statute,
 
 4 regulation, or treaty.  In other respects, the security interest
 
 5 is subject to this article.
 
 6      (d)  During any period in which collateral is inventory held
 
 7 for sale or lease by a person or leased by that person as lessor
 
 8 and that person is in the business of selling or leasing goods of
 
 9 that kind, this section does not apply to a security interest in
 
10 that collateral created by that person as debtor.
 
11      490:9-312  Perfection of security interests in chattel
 
12 paper, deposit accounts, documents, goods covered by documents,
 
13 instruments, investment property, letter-of-credit rights, and
 
14 money; perfection by permissive filing; temporary perfection
 
15 without filing or transfer of possession.(a)  A security
 
16 interest in chattel paper, negotiable documents, instruments, or
 
17 investment property may be perfected by filing.
 
18      (b)  Except as otherwise provided in section 490:9-315(c)
 
19 and (d) for proceeds:
 
20      (1)  A security interest in a deposit account may be
 
21           perfected only by control under section 490:9-314;
 
22      (2)  And except as otherwise provided in section
 
23           490:9-308(d), a security interest in a letter-of-credit
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           right may be perfected only by control under section
 
 2           490:9-314; and
 
 3      (3)  A security interest in money may be perfected only by
 
 4           the secured party's taking possession under section
 
 5           490:9-313.
 
 6      (c)  While goods are in the possession of a bailee that has
 
 7 issued a negotiable document covering the goods:
 
 8      (1)  A security interest in the goods may be perfected by
 
 9           perfecting a security interest in the document; and
 
10      (2)  A security interest perfected in the document has
 
11           priority over any security interest that becomes
 
12           perfected in the goods by another method during that
 
13           time.
 
14      (d)  While goods are in the possession of a bailee that has
 
15 issued a nonnegotiable document covering the goods, a security
 
16 interest in the goods may be perfected by:
 
17      (1)  Issuance of a document in the name of the secured
 
18           party;
 
19      (2)  The bailee's receipt of notification of the secured
 
20           party's interest; or
 
21      (3)  Filing as to the goods.
 
22      (e)  A security interest in certificated securities,
 
23 negotiable documents, or instruments is perfected without filing
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 or the taking of possession for a period of twenty days from the
 
 2 time it attaches to the extent that it arises for new value given
 
 3 under an authenticated security agreement.
 
 4      (f)  A perfected security interest in a negotiable document
 
 5 or goods in possession of a bailee, other than one that has
 
 6 issued a negotiable document for the goods, remains perfected for
 
 7 twenty days without filing if the secured party makes available
 
 8 to the debtor the goods or documents representing the goods for
 
 9 the purpose of:
 
10      (1)  Ultimate sale or exchange; or
 
11      (2)  Loading, unloading, storing, shipping, transshipping,
 
12           manufacturing, processing, or otherwise dealing with
 
13           them in a manner preliminary to their sale or exchange.
 
14      (g)  A perfected security interest in a certificated
 
15 security or instrument remains perfected for twenty days without
 
16 filing if the secured party delivers the security certificate or
 
17 instrument to the debtor for the purpose of:
 
18      (1)  Ultimate sale or exchange; or
 
19      (2)  Presentation, collection, enforcement, renewal, or
 
20           registration of transfer.
 
21      (h)  After the twenty-day period specified in subsection
 
22 (e), (f), or (g) expires, perfection depends upon compliance with
 
23 this article.
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      490:9-313  When possession by or delivery to secured party
 
 2 perfects security interest without filing.(a)  Except as
 
 3 otherwise provided in subsection (b), a secured party may perfect
 
 4 a security interest in negotiable documents, goods, instruments,
 
 5 money, or tangible chattel paper by taking possession of the
 
 6 collateral.  A secured party may perfect a security interest in
 
 7 certificated securities by taking delivery of the certificated
 
 8 securities under section 490:8-301.
 
 9      (b)  With respect to goods covered by a certificate of title
 
10 issued by this State, a secured party may perfect a security
 
11 interest in the goods by taking possession of the goods only in
 
12 the circumstances described in section 490:9-316(d).
 
13      (c)  With respect to collateral other than certificated
 
14 securities and goods covered by a document, a secured party takes
 
15 possession of collateral in the possession of a person other than
 
16 the debtor, the secured party, or a lessee of the collateral from
 
17 the debtor in the ordinary course of the debtor's business, when:
 
18      (1)  The person in possession authenticates a record
 
19           acknowledging that it holds possession of the
 
20           collateral for the secured party's benefit; or
 
21      (2)  The person takes possession of the collateral after
 
22           having authenticated a record acknowledging that it
 
23           will hold possession of collateral for the secured
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           party's benefit.
 
 2      (d)  If perfection of a security interest depends upon
 
 3 possession of the collateral by a secured party, perfection
 
 4 occurs no earlier than the time the secured party takes
 
 5 possession and continues only while the secured party retains
 
 6 possession.
 
 7      (e)  A security interest in a certificated security in
 
 8 registered form is perfected by delivery when delivery of the
 
 9 certificated security occurs under section 490:8-301 and remains
 
10 perfected by delivery until the debtor obtains possession of the
 
11 security certificate.
 
12      (f)  A person in possession of collateral is not required to
 
13 acknowledge that it holds possession for a secured party's
 
14 benefit.
 
15      (g)  If a person acknowledges that it holds possession for
 
16 the secured party's benefit:
 
17      (1)  The acknowledgment is effective under subsection (c) or
 
18           section 490:8-301(a), even if the acknowledgment
 
19           violates the rights of a debtor; and
 
20      (2)  Unless the person otherwise agrees or law other than
 
21           this article otherwise provides, the person does not
 
22           owe any duty to the secured party and is not required
 
23           to confirm the acknowledgment to another person.
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (h)  A secured party having possession of collateral does
 
 2 not relinquish possession by delivering the collateral to a
 
 3 person other than the debtor or a lessee of the collateral from
 
 4 the debtor in the ordinary course of the debtor's business if the
 
 5 person was instructed before the delivery or is instructed
 
 6 contemporaneously with the delivery:
 
 7      (1)  To hold possession of the collateral for the secured
 
 8           party's benefit; or
 
 9      (2)  To redeliver the collateral to the secured party.
 
10      (i)  A secured party does not relinquish possession, even if
 
11 a delivery under subsection (h) violates the rights of a debtor.
 
12 A person to which collateral is delivered under subsection (h)
 
13 does not owe any duty to the secured party and is not required to
 
14 confirm the delivery to another person unless the person
 
15 otherwise agrees or law other than this article otherwise
 
16 provides.
 
17      490:9-314  Perfection by control.(a)  A security interest
 
18 in investment property, deposit accounts, letter-of-credit
 
19 rights, or electronic chattel paper may be perfected by control
 
20 of the collateral under section 490:9-104, 490:9-105, 490:9-106,
 
21 or 490:9-107.
 
22      (b)  A security interest in deposit accounts, electronic
 
23 chattel paper, or letter-of-credit rights is perfected by control
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 under section 490:9-104, 490:9-105, or 490:9-107 when the secured
 
 2 party obtains control and remains perfected by control only while
 
 3 the secured party retains control.
 
 4      (c)  A security interest in investment property is perfected
 
 5 by control under section 490:9-106 from the time the secured
 
 6 party obtains control and remains perfected by control until:
 
 7      (1)  The secured party does not have control; and
 
 8      (2)  One of the following occurs:
 
 9           (A)  If the collateral is a certificated security, the
 
10                debtor has or acquires possession of the security
 
11                certificate;
 
12           (B)  If the collateral is an uncertificated security,
 
13                the issuer has registered or registers the debtor
 
14                as the registered owner; or
 
15           (C)  If the collateral is a security entitlement, the
 
16                debtor is or becomes the entitlement holder.
 
17      490:9-315  Secured party's rights on disposition of
 
18 collateral and in proceeds.(a)  Except as otherwise provided in
 
19 this article and in section 490:2-403(2):
 
20      (1)  A security interest or agricultural lien continues in
 
21           collateral notwithstanding sale, lease, license,
 
22           exchange, or other disposition thereof unless the
 
23           secured party authorized the disposition free of the
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           security interest or agricultural lien; and
 
 2      (2)  A security interest attaches to any identifiable
 
 3           proceeds of collateral.
 
 4      (b)  Proceeds that are commingled with other property are
 
 5 identifiable proceeds:
 
 6      (1)  If the proceeds are goods, to the extent provided by
 
 7           section 490:9-336; and
 
 8      (2)  If the proceeds are not goods, to the extent that the
 
 9           secured party identifies the proceeds by a method of
 
10           tracing, including application of equitable principles,
 
11           that is permitted under law other than this article
 
12           with respect to commingled property of the type
 
13           involved.
 
14      (c)  A security interest in proceeds is a perfected security
 
15 interest if the security interest in the original collateral was
 
16 perfected.
 
17      (d)  A perfected security interest in proceeds becomes
 
18 unperfected on the twenty-first day after the security interest
 
19 attaches to the proceeds unless:
 
20      (1)  The following conditions are satisfied:
 
21           (A)  A filed financing statement covers the original
 
22                collateral;
 
23           (B)  The proceeds are collateral in which a security
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1                interest may be perfected by filing in the office
 
 2                in which the financing statement has been filed;
 
 3                and
 
 4           (C)  The proceeds are not acquired with cash proceeds;
 
 5      (2)  The proceeds are identifiable cash proceeds; or
 
 6      (3)  The security interest in the proceeds is perfected
 
 7           other than under subsection (c) when the security
 
 8           interest attaches to the proceeds or within twenty days
 
 9           thereafter.
 
10      (e)  If a filed financing statement covers the original
 
11 collateral, a security interest in proceeds which remains
 
12 perfected under subsection (d)(1) becomes unperfected at the
 
13 later of:
 
14      (1)  When the effectiveness of the filed financing statement
 
15           lapses under section 490:9-515 or is terminated under
 
16           section 490:9-513; or
 
17      (2)  The twenty-first day after the security interest
 
18           attaches to the proceeds.
 
19      490:9-316  Continued perfection of security interest
 
20 following change in governing law.(a)  A security interest
 
21 perfected pursuant to the law of the jurisdiction designated in
 
22 section 490:9-301(1) or 490:9-305(c) remains perfected until the
 
23 earliest of:
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (1)  The time perfection would have ceased under the law of
 
 2           that jurisdiction;
 
 3      (2)  The expiration of four months after a change of the
 
 4           debtor's location to another jurisdiction; or
 
 5      (3)  The expiration of one year after a transfer of
 
 6           collateral to a person that thereby becomes a debtor
 
 7           and is located in another jurisdiction.
 
 8      (b)  If a security interest described in subsection (a)
 
 9 becomes perfected under the law of the other jurisdiction before
 
10 the earliest time or event described in that subsection, it
 
11 remains perfected thereafter.  If the security interest does not
 
12 become perfected under the law of the other jurisdiction before
 
13 the earliest time or event, it becomes unperfected and is deemed
 
14 never to have been perfected as against a purchaser of the
 
15 collateral for value.
 
16      (c)  A possessory security interest in collateral, other
 
17 than goods covered by a certificate of title and as-extracted
 
18 collateral consisting of goods, remains continuously perfected
 
19 if:
 
20      (1)  The collateral is located in one jurisdiction and
 
21           subject to a security interest perfected under the law
 
22           of that jurisdiction;
 
23      (2)  Thereafter the collateral is brought into another
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           jurisdiction; and
 
 2      (3)  Upon entry into the other jurisdiction, the security
 
 3           interest is perfected under the law of the other
 
 4           jurisdiction.
 
 5      (d)  Except as otherwise provided in subsection (e), a
 
 6 security interest in goods covered by a certificate of title
 
 7 which is perfected by any method under the law of another
 
 8 jurisdiction when the goods become covered by a certificate of
 
 9 title from this State remains perfected until the security
 
10 interest would have become unperfected under the law of the other
 
11 jurisdiction had the goods not become so covered.
 
12      (e)  A security interest described in subsection (d) becomes
 
13 unperfected as against a purchaser of the goods for value and is
 
14 deemed never to have been perfected as against a purchaser of the
 
15 goods for value if the applicable requirements for perfection
 
16 under section 490:9-311(b) or 490:9-313 are not satisfied before
 
17 the earlier of:
 
18      (1)  The time the security interest would have become
 
19           unperfected under the law of the other jurisdiction had
 
20           the goods not become covered by a certificate of title
 
21           from this State; or
 
22      (2)  The expiration of four months after the goods had
 
23           become so covered.
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (f)  A security interest in deposit accounts, letter-of-
 
 2 credit rights, or investment property which is perfected under
 
 3 the law of the bank's jurisdiction, the issuer's jurisdiction, a
 
 4 nominated person's jurisdiction, the securities intermediary's
 
 5 jurisdiction, or the commodity intermediary's jurisdiction, as
 
 6 applicable, remains perfected until the earlier of:
 
 7      (1)  The time the security interest would have become
 
 8           unperfected under the law of that jurisdiction; or
 
 9      (2)  The expiration of four months after a change of the
 
10           applicable jurisdiction to another jurisdiction.
 
11      (g)  If a security interest described in subsection (f)
 
12 becomes perfected under the law of the other jurisdiction before
 
13 the earlier of the time or the end of the period described in
 
14 that subsection, it remains perfected thereafter.  If the
 
15 security interest does not become perfected under the law of the
 
16 other jurisdiction before the earlier of that time or the end of
 
17 that period, it becomes unperfected and is deemed never to have
 
18 been perfected as against a purchaser of the collateral for
 
19 value.
 
20                       SUBPART 3.  PRIORITY
 
21      490:9-317  Interests that take priority over or take free
 
22 of unperfected security interest or agricultural lien.(a)  An
 
23 unperfected security interest or agricultural lien is subordinate
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 to the rights of:
 
 2      (1)  A person entitled to priority under section 490:9-322;
 
 3           and
 
 4      (2)  A person that becomes a lien creditor before the
 
 5           earlier of the time the security interest or
 
 6           agricultural lien is perfected or a financing statement
 
 7           covering the collateral is filed.
 
 8      (b)  Except as otherwise provided in subsection (e), a
 
 9 buyer, other than a secured party, of tangible chattel paper,
 
10 documents, goods, instruments, or a security certificate takes
 
11 free of a security interest or agricultural lien if the buyer
 
12 gives value and receives delivery of the collateral without
 
13 knowledge of the security interest or agricultural lien and
 
14 before it is perfected.
 
15      (c)  Except as otherwise provided in subsection (e), a
 
16 lessee of goods takes free of a security interest or agricultural
 
17 lien if the lessee gives value and receives delivery of the
 
18 collateral without knowledge of the security interest or
 
19 agricultural lien and before it is perfected.
 
20      (d)  A licensee of a general intangible or a buyer, other
 
21 than a secured party, of accounts, electronic chattel paper,
 
22 general intangibles, or investment property other than a
 
23 certificated security takes free of a security interest if the
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 licensee or buyer gives value without knowledge of the security
 
 2 interest and before it is perfected.
 
 3      (e)  Except as otherwise provided in sections 490:9-320 and
 
 4 490:9-321, if a person files a financing statement with respect
 
 5 to a purchase-money security interest before or within twenty
 
 6 days after the debtor receives delivery of the collateral, the
 
 7 security interest takes priority over the rights of a buyer,
 
 8 lessee, or lien creditor which arise between the time the
 
 9 security interest attaches and the time of filing.
 
10      490:9-318  No interest retained in right to payment that is
 
11 sold; rights and title of seller of account or chattel paper with
 
12 respect to creditors and purchasers.(a)  A debtor that has sold
 
13 an account, chattel paper, payment intangible, or promissory note
 
14 does not retain a legal or equitable interest in the collateral
 
15 sold.
 
16      (b)  For purposes of determining the rights of creditors of,
 
17 and purchasers for value of an account or chattel paper from, a
 
18 debtor that has sold an account or chattel paper, while the
 
19 buyer's security interest is unperfected, the debtor is deemed to
 
20 have rights and title to the account or chattel paper identical
 
21 to those the debtor sold.
 
22      490:9-319  Rights and title of consignee with respect to
 
23 creditors and purchasers.(a)  Except as otherwise provided in
 

 
Page 80                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 subsection (b), for purposes of determining the rights of
 
 2 creditors of, and purchasers for value of goods from, a
 
 3 consignee, while the goods are in the possession of the
 
 4 consignee, the consignee is deemed to have rights and title to
 
 5 the goods identical to those the consignor had or had power to
 
 6 transfer.
 
 7      (b)  For purposes of determining the rights of a creditor of
 
 8 a consignee, law other than this article determines the rights
 
 9 and title of a consignee while goods are in the consignee's
 
10 possession if, under this part, a perfected security interest
 
11 held by the consignor would have priority over the rights of the
 
12 creditor.
 
13      490:9-320  Buyer of goods.(a)  Except as otherwise
 
14 provided in subsection (e), a buyer in ordinary course of
 
15 business, other than a person buying farm products from a person
 
16 engaged in farming operations, takes free of a security interest
 
17 created by the buyer's seller, even if the security interest is
 
18 perfected and the buyer knows of its existence.
 
19      (b)  Except as otherwise provided in subsection (e), a buyer
 
20 of goods from a person who used or bought the goods for use
 
21 primarily for personal, family, or household purposes takes free
 
22 of a security interest, even if perfected, if the buyer buys:
 
23      (1)  Without knowledge of the security interest;
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (2)  For value;
 
 2      (3)  Primarily for the buyer's personal, family, or
 
 3           household purposes; and
 
 4      (4)  Before the filing of a financing statement covering the
 
 5           goods.
 
 6      (c)  To the extent that it affects the priority of a
 
 7 security interest over a buyer of goods under subsection (b), the
 
 8 period of effectiveness of a filing made in the jurisdiction in
 
 9 which the seller is located is governed by section 490:9-316(a)
 
10 and (b).
 
11      (d)  A buyer in ordinary course of business buying oil, gas,
 
12 or other minerals at the wellhead or minehead or after extraction
 
13 takes free of an interest arising out of an encumbrance.
 
14      (e)  Subsections (a) and (b) do not affect a security
 
15 interest in goods in the possession of the secured party under
 
16 section 490:9-313.
 
17      490:9-321  Licensee of general intangible and lessee of
 
18 goods in ordinary course of business.(a)  In this section,
 
19 "licensee in ordinary course of business" means a person that
 
20 becomes a licensee of a general intangible in good faith, without
 
21 knowledge that the license violates the rights of another person
 
22 in the general intangible, and in the ordinary course from a
 
23 person in the business of licensing general intangibles of that
 

 
Page 82                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 kind.  A person becomes a licensee in the ordinary course if the
 
 2 license to the person comports with the usual or customary
 
 3 practices in the kind of business in which the licensor is
 
 4 engaged or with the licensor's own usual or customary practices.
 
 5      (b)  A licensee in ordinary course of business takes its
 
 6 rights under a nonexclusive license free of a security interest
 
 7 in the general intangible created by the licensor, even if the
 
 8 security interest is perfected and the licensee knows of its
 
 9 existence.
 
10      (c)  A lessee in ordinary course of business takes its
 
11 leasehold interest free of a security interest in the goods
 
12 created by the lessor, even if the security interest is perfected
 
13 and the lessee knows of its existence.
 
14      490:9-322  Priorities among conflicting security interests
 
15 in and agricultural liens on same collateral.(a)  Except as
 
16 otherwise provided in this section, priority among conflicting
 
17 security interests and agricultural liens in the same collateral
 
18 is determined according to the following rules:
 
19      (1)  Conflicting perfected security interests and
 
20           agricultural liens rank according to priority in time
 
21           of filing or perfection.  Priority dates from the
 
22           earlier of the time a filing covering the collateral is
 
23           first made or the security interest or agricultural
 

 
Page 83                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           lien is first perfected, if there is no period
 
 2           thereafter when there is neither filing nor perfection.
 
 3      (2)  A perfected security interest or agricultural lien has
 
 4           priority over a conflicting unperfected security
 
 5           interest or agricultural lien.
 
 6      (3)  The first security interest or agricultural lien to
 
 7           attach or become effective has priority if conflicting
 
 8           security interests and agricultural liens are
 
 9           unperfected.
 
10      (b)  For the purposes subsection (a)(1):
 
11      (1)  The time of filing or perfection as to a security
 
12           interest in collateral is also the time of filing or
 
13           perfection as to a security interest in proceeds; and
 
14      (2)  The time of filing or perfection as to a security
 
15           interest in collateral supported by a supporting
 
16           obligation is also the time of filing or perfection as
 
17           to a security interest in the supporting obligation.
 
18      (c)  Except as otherwise provided in subsection (f), a
 
19 security interest in collateral which qualifies for priority over
 
20 a conflicting security interest under section 490:9-327,
 
21 490:9-328, 490:9-329, 490:9-330, or 490:9-331 also has priority
 
22 over a conflicting security interest in:
 
23      (1)  Any supporting obligation for the collateral; and
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (2)  Proceeds of the collateral if:
 
 2           (A)  The security interest in proceeds is perfected;
 
 3           (B)  The proceeds are cash proceeds or of the same type
 
 4                as the collateral; and
 
 5           (C)  In the case of proceeds that are proceeds of
 
 6                proceeds, all intervening proceeds are cash
 
 7                proceeds, proceeds of the same type as the
 
 8                collateral, or an account relating to the
 
 9                collateral.
 
10      (d)  Subject to subsection (e) and except as otherwise
 
11 provided in subsection (f), if a security interest in chattel
 
12 paper, deposit accounts, negotiable documents, instruments,
 
13 investment property, or letter-of-credit rights is perfected by a
 
14 method other than filing, conflicting perfected security
 
15 interests in proceeds of the collateral rank according to
 
16 priority in time of filing.
 
17      (e)  Subsection (d) applies only if the proceeds of the
 
18 collateral are not cash proceeds, chattel paper, negotiable
 
19 documents, instruments, investment property, or letter-of-credit
 
20 rights.
 
21      (f)  Subsections (a) through (e) are subject to:
 
22      (1)  Subsection (g) and the other provisions of this part;
 
23      (2)  Section 490:4-210 with respect to a security interest
 

 
Page 85                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           of a collecting bank;
 
 2      (3)  Section 490:5-118 with respect to a security interest
 
 3           of an issuer or nominated person; and
 
 4      (4)  Section 490:9-110 with respect to a security interest
 
 5           arising under Article 2 or 2A.
 
 6      (g)  A perfected agricultural lien on collateral has
 
 7 priority over a conflicting security interest in or agricultural
 
 8 lien on the same collateral if the statute creating the
 
 9 agricultural lien so provides.
 
10      490:9-323  Future advances.(a)  Except as otherwise
 
11 provided in subsection (c), for purposes of determining the
 
12 priority of a perfected security interest under section
 
13 490:9-322(a)(1), perfection of the security interest dates from
 
14 the time an advance is made to the extent that the security
 
15 interest secures an advance that:
 
16      (1)  Is made while the security interest is perfected only:
 
17           (A)  Under section 490:9-309 when it attaches; or
 
18           (B)  Temporarily under section 490:9-312(e), (f), or
 
19                (g); and
 
20      (2)  Is not made pursuant to a commitment entered into
 
21           before or while the security interest is perfected by a
 
22           method other than under section 490:9-309 or
 
23           490:9-312(e), (f), or (g).
 

 
Page 86                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (b)  Except as otherwise provided in subsection (c), a
 
 2 security interest is subordinate to the rights of a person that
 
 3 becomes a lien creditor while the security interest is perfected
 
 4 only to the extent that it secures advances made more than forty-
 
 5 five days after the person becomes a lien creditor unless the
 
 6 advance is made:
 
 7      (1)  Without knowledge of the lien; or
 
 8      (2)  Pursuant to a commitment entered into without knowledge
 
 9           of the lien.
 
10      (c)  Subsections (a) and (b) do not apply to a security
 
11 interest held by a secured party that is a buyer of accounts,
 
12 chattel paper, payment intangibles, or promissory notes or a
 
13 consignor.
 
14      (d)  Except as otherwise provided in subsection (e), a buyer
 
15 of goods other than a buyer in ordinary course of business takes
 
16 free of a security interest to the extent that it secures
 
17 advances made after the earlier of:
 
18      (1)  The time the secured party acquires knowledge of the
 
19           buyer's purchase; or
 
20      (2)  Forty-five days after the purchase.
 
21      (e)  Subsection (d) does not apply if the advance is made
 
22 pursuant to a commitment entered into without knowledge of the
 
23 buyer's purchase and before the expiration of the forty-five-day
 

 
Page 87                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 period.
 
 2      (f)  Except as otherwise provided in subsection (g), a
 
 3 lessee of goods, other than a lessee in ordinary course of
 
 4 business, takes the leasehold interest free of a security
 
 5 interest to the extent that it secures advances made after the
 
 6 earlier of:
 
 7      (1)  The time the secured party acquires knowledge of the
 
 8           lease; or
 
 9      (2)  Forty-five days after the lease contract becomes
 
10           enforceable.
 
11      (g)  Subsection (f) does not apply if the advance is made
 
12 pursuant to a commitment entered into without knowledge of the
 
13 lease and before the expiration of the forty-five-day period.
 
14      490:9-324  Priority of purchase-money security interests.
 
15 (a)  Except as otherwise provided in subsection (g), a perfected
 
16 purchase-money security interest in goods other than inventory or
 
17 livestock has priority over a conflicting security interest in
 
18 the same goods, and, except as otherwise provided in section
 
19 490:9-327, a perfected security interest in its identifiable
 
20 proceeds also has priority, if the purchase-money security
 
21 interest is perfected when the debtor receives possession of the
 
22 collateral or within twenty days thereafter.
 
23      (b)  Subject to subsection (c) and except as otherwise
 

 
Page 88                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 provided in subsection (g), a perfected purchase-money security
 
 2 interest in inventory has priority over a conflicting security
 
 3 interest in the same inventory, has priority over a conflicting
 
 4 security interest in chattel paper or an instrument constituting
 
 5 proceeds of the inventory and in proceeds of the chattel paper,
 
 6 if so provided in section 490:9-330, and, except as otherwise
 
 7 provided in section 490:9-327, also has priority in identifiable
 
 8 cash proceeds of the inventory to the extent the identifiable
 
 9 cash proceeds are received on or before the delivery of the
 
10 inventory to a buyer, if:
 
11      (1)  The purchase-money security interest is perfected when
 
12           the debtor receives possession of the inventory;
 
13      (2)  The purchase-money secured party sends an authenticated
 
14           notification to the holder of the conflicting security
 
15           interest;
 
16      (3)  The holder of the conflicting security interest
 
17           receives the notification within five years before the
 
18           debtor receives possession of the inventory; and
 
19      (4)  The notification states that the person sending the
 
20           notification has or expects to acquire a purchase-
 
21           money security interest in inventory of the debtor and
 
22           describes the inventory.
 
23      (c)  Subsection (b)(2) through (4) applies only if the
 

 
Page 89                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 holder of the conflicting security interest had filed a financing
 
 2 statement covering the same types of inventory:
 
 3      (1)  If the purchase-money security interest is perfected by
 
 4           filing, before the date of the filing; or
 
 5      (2)  If the purchase-money security interest is temporarily
 
 6           perfected without filing or possession under section
 
 7           490:9-312(f), before the beginning of the twenty-day
 
 8           period thereunder.
 
 9      (d)  Subject to subsection (e) and except as otherwise
 
10 provided in subsection (g), a perfected purchase-money security
 
11 interest in livestock that are farm products has priority over a
 
12 conflicting security interest in the same livestock, and, except
 
13 as otherwise provided in section 490:9-327, a perfected security
 
14 interest in their identifiable proceeds and identifiable products
 
15 in their unmanufactured states also has priority, if:
 
16      (1)  The purchase-money security interest is perfected when
 
17           the debtor receives possession of the livestock;
 
18      (2)  The purchase-money secured party sends an authenticated
 
19           notification to the holder of the conflicting security
 
20           interest;
 
21      (3)  The holder of the conflicting security interest
 
22           receives the notification within six months before the
 
23           debtor receives possession of the livestock; and
 

 
Page 90                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (4)  The notification states that the person sending the
 
 2           notification has or expects to acquire a purchase-
 
 3           money security interest in livestock of the debtor and
 
 4           describes the livestock.
 
 5      (e)  Subsection (d)(2) through (4) applies only if the
 
 6 holder of the conflicting security interest had filed a financing
 
 7 statement covering the same types of livestock:
 
 8      (1)  If the purchase-money security interest is perfected by
 
 9           filing, before the date of the filing; or
 
10      (2)  If the purchase-money security interest is temporarily
 
11           perfected without filing or possession under section
 
12           490:9-312(f), before the beginning of the twenty-day
 
13           period thereunder.
 
14      (f)  Except as otherwise provided in subsection (g), a
 
15 perfected purchase-money security interest in software has
 
16 priority over a conflicting security interest in the same
 
17 collateral, and, except as otherwise provided in section
 
18 490:9-327, a perfected security interest in its identifiable
 
19 proceeds also has priority, to the extent that the purchase-
 
20 money security interest in the goods in which the software was
 
21 acquired for use has priority in the goods and proceeds of the
 
22 goods under this section.
 
23      (g)  If more than one security interest qualifies for
 

 
Page 91                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 priority in the same collateral under subsection (a), (b), (d),
 
 2 or (f):
 
 3      (1)  A security interest securing an obligation incurred as
 
 4           all or part of the price of the collateral has priority
 
 5           over a security interest securing an obligation
 
 6           incurred for value given to enable the debtor to
 
 7           acquire rights in or the use of collateral; and
 
 8      (2)  In all other cases, section 490:9-322(a) applies to the
 
 9           qualifying security interests.
 
10      490:9-325  Priority of security interests in transferred
 
11 collateral.(a)  Except as otherwise provided in subsection (b),
 
12 a security interest created by a debtor is subordinate to a
 
13 security interest in the same collateral created by another
 
14 person if:
 
15      (1)  The debtor acquired the collateral subject to the
 
16           security interest created by the other person;
 
17      (2)  The security interest created by the other person was
 
18           perfected when the debtor acquired the collateral; and
 
19      (3)  There is no period thereafter when the security
 
20           interest is unperfected.
 
21      (b)  Subsection (a) subordinates a security interest only if
 
22 the security interest:
 
23      (1)  Otherwise would have priority solely under section
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           490:9-322(a) or 490:9-324; or
 
 2      (2)  Arose solely under section 490:2-711(3) or
 
 3           490:2A-508(e).
 
 4      490:9-326  Priority of security interests created by new
 
 5 debtor.(a)  Subject to subsection (b), a security interest
 
 6 created by a new debtor which is perfected by a filed financing
 
 7 statement that is effective solely under section 490:9-508 in
 
 8 collateral in which a new debtor has or acquires rights is
 
 9 subordinate to a security interest in the same collateral which
 
10 is perfected other than by a filed financing statement that is
 
11 effective solely under section 490:9-508.
 
12      (b)  The other provisions of this part determine the
 
13 priority among conflicting security interests in the collateral
 
14 perfected by filed financing statements that are effective solely
 
15 under section 490:9-508.  However, if the security agreements to
 
16 which a new debtor became bound as debtor were not entered into
 
17 by the same original debtor, the conflicting security interests
 
18 rank according to priority in time of the new debtor's having
 
19 become bound.
 
20      490:9-327  Priority of security interests in deposit
 
21 account.  The following rules govern priority among conflicting
 
22 security interests in the same deposit account:
 
23      (1)  A security interest held by a secured party having
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           control of the deposit account under section 490:9-104
 
 2           has priority over a conflicting security interest held
 
 3           by a secured party that does not have control.
 
 4      (2)  Except as otherwise provided in paragraphs (3) and (4),
 
 5           security interests perfected by control under section
 
 6           490:9-314 rank according to priority in time of
 
 7           obtaining control.
 
 8      (3)  Except as otherwise provided in paragraph (4), a
 
 9           security interest held by the bank with which the
 
10           deposit account is maintained has priority over a
 
11           conflicting security interest held by another secured
 
12           party.
 
13      (4)  A security interest perfected by control under section
 
14           490:9-104(a)(3) has priority over a security interest
 
15           held by the bank with which the deposit account is
 
16           maintained.
 
17      490:9-328  Priority of security interests in investment
 
18 property.  The following rules govern priority among conflicting
 
19 security interests in the same investment property:
 
20      (1)  A security interest held by a secured party having
 
21           control of investment property under section 490:9-106
 
22           has priority over a security interest held by a secured
 
23           party that does not have control of the investment
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           property.
 
 2      (2)  Except as otherwise provided in paragraphs (3) and (4),
 
 3           conflicting security interests held by secured parties
 
 4           each of which has control under section 490:9-106 rank
 
 5           according to priority in time of:
 
 6           (A)  If the collateral is a security, obtaining
 
 7                control;
 
 8           (B)  If the collateral is a security entitlement
 
 9                carried in a securities account and:
 
10                (i)  If the secured party obtained control under
 
11                     section 490:8-106(d)(1), the secured party's
 
12                     becoming the person for which the securities
 
13                     account is maintained;
 
14               (ii)  If the secured party obtained control under
 
15                     section 490:8-106(d)(2), the securities
 
16                     intermediary's agreement to comply with the
 
17                     secured party's entitlement orders with
 
18                     respect to security entitlements carried or
 
19                     to be carried in the securities account; or
 
20              (iii)  If the secured party obtained control through
 
21                     another person under section 490:8-106(d)(3),
 
22                     the time on which priority would be based
 
23                     under this paragraph if the other person were
 

 
Page 95                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1                     the secured party; or
 
 2           (C)  If the collateral is a commodity contract carried
 
 3                with a commodity intermediary, the satisfaction of
 
 4                the requirement for control specified in section
 
 5                490:9-106(b)(2) with respect to commodity
 
 6                contracts carried or to be carried with the
 
 7                commodity intermediary.
 
 8      (3)  A security interest held by a securities intermediary
 
 9           in a security entitlement or a securities account
 
10           maintained with the securities intermediary has
 
11           priority over a conflicting security interest held by
 
12           another secured party.
 
13      (4)  A security interest held by a commodity intermediary in
 
14           a commodity contract or a commodity account maintained
 
15           with the commodity intermediary has priority over a
 
16           conflicting security interest held by another secured
 
17           party.
 
18      (5)  A security interest in a certificated security in
 
19           registered form which is perfected by taking delivery
 
20           under section 490:9-313(a) and not by control under
 
21           section 490:9-314 has priority over a conflicting
 
22           security interest perfected by a method other than
 
23           control.
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (6)  Conflicting security interests created by a broker,
 
 2           securities intermediary, or commodity intermediary
 
 3           which are perfected without control under section
 
 4           490:9-106 rank equally.
 
 5      (7)  In all other cases, priority among conflicting security
 
 6           interests in investment property is governed by
 
 7           sections 490:9-322 and 490:9-323.
 
 8      490:9-329  Priority of security interests in letter-of-
 
 9 credit right.  The following rules govern priority among
 
10 conflicting security interests in the same letter-of-credit
 
11 right:
 
12      (1)  A security interest held by a secured party having
 
13           control of the letter-of-credit right under section
 
14           490:9-107 has priority to the extent of its control
 
15           over a conflicting security interest held by a secured
 
16           party that does not have control.
 
17      (2)  Security interests perfected by control under section
 
18           490:9-314 rank according to priority in time of
 
19           obtaining control.
 
20      490:9-330  Priority of purchaser of chattel paper or
 
21 instrument.(a)  A purchaser of chattel paper has priority over
 
22 a security interest in the chattel paper which is claimed merely
 
23 as proceeds of inventory subject to a security interest if:
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (1)  In good faith and in the ordinary course of the
 
 2           purchaser's business, the purchaser gives new value and
 
 3           takes possession of the chattel paper or obtains
 
 4           control of the chattel paper under section 490:9-105;
 
 5           and
 
 6      (2)  The chattel paper does not indicate that it has been
 
 7           assigned to an identified assignee other than the
 
 8           purchaser.
 
 9      (b)  A purchaser of chattel paper has priority over a
 
10 security interest in the chattel paper which is claimed other
 
11 than merely as proceeds of inventory subject to a security
 
12 interest if the purchaser gives new value and takes possession of
 
13 the chattel paper or obtains control of the chattel paper under
 
14 section 490:9-105 in good faith, in the ordinary course of the
 
15 purchaser's business, and without knowledge that the purchase
 
16 violates the rights of the secured party.
 
17      (c)  Except as otherwise provided in section 490:9-327, a
 
18 purchaser having priority in chattel paper under subsection (a)
 
19 or (b) also has priority in proceeds of the chattel paper to the
 
20 extent that:
 
21      (1)  Section 490:9-322 provides for priority in the
 
22           proceeds; or
 
23      (2)  The proceeds consist of the specific goods covered by
 

 
Page 98                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           the chattel paper or cash proceeds of the specific
 
 2           goods, even if the purchaser's security interest in the
 
 3           proceeds is unperfected.
 
 4      (d)  Except as otherwise provided in section 490:9-331(a), a
 
 5 purchaser of an instrument has priority over a security interest
 
 6 in the instrument perfected by a method other than possession if
 
 7 the purchaser gives value and takes possession of the instrument
 
 8 in good faith and without knowledge that the purchase violates
 
 9 the rights of the secured party.
 
10      (e)  For purposes of subsections (a) and (b), the holder of
 
11 a purchase-money security interest in inventory gives new value
 
12 for chattel paper constituting proceeds of the inventory.
 
13      (f)  For purposes of subsections (b) and (d), if chattel
 
14 paper or an instrument indicates that it has been assigned to an
 
15 identified secured party other than the purchaser, a purchaser of
 
16 the chattel paper or instrument has knowledge that the purchase
 
17 violates the rights of the secured party.
 
18      490:9-331  Priority of rights of purchasers of instruments,
 
19 documents, and securities under other articles; priority of
 
20 interests in financial assets and security entitlements under
 
21 Article 8.(a)  This article does not limit the rights of a
 
22 holder in due course of a negotiable instrument, a holder to
 
23 which a negotiable document of title has been duly negotiated, or
 

 
Page 99                                                    
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 a protected purchaser of a security.  These holders or purchasers
 
 2 take priority over an earlier security interest, even if
 
 3 perfected, to the extent provided in Articles 3, 7, and 8.
 
 4      (b)  This article does not limit the rights of or impose
 
 5 liability on a person to the extent that the person is protected
 
 6 against the assertion of an adverse claim under Article 8.
 
 7      (c)  Filing under this article does not constitute notice of
 
 8 a claim or defense to the holders, or purchasers, or persons
 
 9 described in subsections (a) and (b).
 
10      490:9-332  Transfer of money; transfer of funds from
 
11 deposit account.  (a)  A transferee of money takes the money free
 
12 of a security interest unless the transferee acts in collusion
 
13 with the debtor in violating the rights of the secured party.
 
14      (b)  A transferee of funds from a deposit account takes the
 
15 funds free of a security interest in the deposit account unless
 
16 the transferee acts in collusion with the debtor in violating the
 
17 rights of the secured party.
 
18      490:9-333  Priority of certain liens arising by operation
 
19 of law.(a)  In this section, "possessory lien" means an
 
20 interest, other than a security interest or an agricultural lien:
 
21      (1)  Which secures payment or performance of an obligation
 
22           for services or materials furnished with respect to
 
23           goods by a person in the ordinary course of the
 

 
Page 100                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           person's business;
 
 2      (2)  Which is created by statute or rule of law in favor of
 
 3           the person; and
 
 4      (3)  Whose effectiveness depends on the person's possession
 
 5           of the goods.
 
 6      (b)  A possessory lien on goods has priority over a security
 
 7 interest in the goods unless the lien is created by a statute
 
 8 that expressly provides otherwise.
 
 9      490:9-334  Priority of security interests in fixtures and
 
10 crops.(a)  A security interest under this article may be
 
11 created in goods that are fixtures or may continue in goods that
 
12 become fixtures.  A security interest does not exist under this
 
13 article in ordinary building materials incorporated into an
 
14 improvement on land.
 
15      (b)  This article does not prevent creation of an
 
16 encumbrance upon fixtures under real property law.
 
17      (c)  In cases not governed by subsections (d) through (h), a
 
18 security interest in fixtures is subordinate to a conflicting
 
19 interest of an encumbrancer or owner of the related real property
 
20 other than the debtor.
 
21      (d)  Except as otherwise provided in subsection (h), a
 
22 perfected security interest in fixtures has priority over a
 
23 conflicting interest of an encumbrancer or owner of the real
 

 
Page 101                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 property if the debtor has an interest of record in or is in
 
 2 possession of the real property and:
 
 3      (1)  The security interest is a purchase-money security
 
 4           interest;
 
 5      (2)  The interest of the encumbrancer or owner arises before
 
 6           the goods become fixtures; and
 
 7      (3)  The security interest is perfected by a fixture filing
 
 8           before the goods become fixtures or within twenty days
 
 9           thereafter.
 
10      (e)  A perfected security interest in fixtures has priority
 
11 over a conflicting interest of an encumbrancer or owner of the
 
12 real property if:
 
13      (1)  The debtor has an interest of record in the real
 
14           property or is in possession of the real property and
 
15           the security interest:
 
16           (A)  Is perfected by a fixture filing before the
 
17                interest of the encumbrancer or owner is of
 
18                record; and
 
19           (B)  Has priority over any conflicting interest of a
 
20                predecessor in title of the encumbrancer or owner;
 
21      (2)  Before the goods become fixtures, the security interest
 
22           is perfected by any method permitted by this article
 
23           and the fixtures are readily removable:
 

 
Page 102                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           (A)  Factory or office machines;
 
 2           (B)  Equipment that is not primarily used or leased for
 
 3                use in the operation of the real property; or
 
 4           (C)  Replacements of domestic appliances that are
 
 5                consumer goods;
 
 6      (3)  The conflicting interest is a lien on the real property
 
 7           obtained by legal or equitable proceedings after the
 
 8           security interest was perfected by any method permitted
 
 9           by this article; or
 
10      (4)  The security interest is:
 
11           (A)  Created in a manufactured home in a manufactured-
 
12                home transaction; and
 
13           (B)  Perfected pursuant to a statute described in
 
14                section 490:9-311(a)(2).
 
15      (f)  A security interest in fixtures, whether or not
 
16 perfected, has priority over a conflicting interest of an
 
17 encumbrancer or owner of the real property if:
 
18      (1)  The encumbrancer or owner has, in an authenticated
 
19           record, consented to the security interest or
 
20           disclaimed an interest in the goods as fixtures; or
 
21      (2)  The debtor has a right to remove the goods as against
 
22           the encumbrancer or owner.
 
23      (g)  The priority of the security interest under subsection
 

 
Page 103                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 (f) continues for a reasonable time if the debtor's right to
 
 2 remove the goods as against the encumbrancer or owner terminates.
 
 3      (h)  A mortgage is a construction mortgage to the extent
 
 4 that it secures an obligation incurred for the construction of an
 
 5 improvement on land, including the acquisition cost of the land,
 
 6 if a recorded record of the mortgage so indicates.  Except as
 
 7 otherwise provided in subsections (e) and (f), a security
 
 8 interest in fixtures is subordinate to a construction mortgage if
 
 9 a record of the mortgage is recorded before the goods become
 
10 fixtures and the goods become fixtures before the completion of
 
11 the construction.  A mortgage has this priority to the same
 
12 extent as a construction mortgage to the extent that it is given
 
13 to refinance a construction mortgage.
 
14      (i)  A perfected security interest in crops growing on real
 
15 property has priority over a conflicting interest of an
 
16 encumbrancer or owner of the real property if the debtor has an
 
17 interest of record in or is in possession of the real property.
 
18      490:9-335  Accessions.(a)  A security interest may be
 
19 created in an accession and continues in collateral that becomes
 
20 an accession.
 
21      (b)  If a security interest is perfected when the collateral
 
22 becomes an accession, the security interest remains perfected in
 
23 the collateral.
 

 
Page 104                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (c)  Except as otherwise provided in subsection (d), the
 
 2 other provisions of this part determine the priority of a
 
 3 security interest in an accession.
 
 4      (d)  A security interest in an accession is subordinate to a
 
 5 security interest in the whole which is perfected by compliance
 
 6 with the requirements of a certificate-of-title statute under
 
 7 section 490:9-311(b).
 
 8      (e)  After default, subject to part 6, a secured party may
 
 9 remove an accession from other goods if the security interest in
 
10 the accession has priority over the claims of every person having
 
11 an interest in the whole.
 
12      (f)  A secured party that removes an accession from other
 
13 goods under subsection (e) shall promptly reimburse any holder of
 
14 a security interest or other lien on, or owner of, the whole or
 
15 of the other goods, other than the debtor, for the cost of repair
 
16 of any physical injury to the whole or the other goods.  The
 
17 secured party need not reimburse the holder or owner for any
 
18 diminution in value of the whole or the other goods caused by the
 
19 absence of the accession removed or by any necessity for
 
20 replacing it.  A person entitled to reimbursement may refuse
 
21 permission to remove until the secured party gives adequate
 
22 assurance for the performance of the obligation to reimburse.
 
23      490:9-336  Commingled goods.(a)  In this section,
 

 
Page 105                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 "commingled goods" means goods that are physically united with
 
 2 other goods in such a manner that their identity is lost in a
 
 3 product or mass.
 
 4      (b)  A security interest does not exist in commingled goods
 
 5 as such.  However, a security interest may attach to a product or
 
 6 mass that results when goods become commingled goods.
 
 7      (c)  If collateral becomes commingled goods, a security
 
 8 interest attaches to the product or mass.
 
 9      (d)  If a security interest in collateral is perfected
 
10 before the collateral becomes commingled goods, the security
 
11 interest that attaches to the product or mass under subsection
 
12 (c) is perfected.
 
13      (e)  Except as otherwise provided in subsection (f), the
 
14 other provisions of this part determine the priority of a
 
15 security interest that attaches to the product or mass under
 
16 subsection (c).
 
17      (f)  If more than one security interest attaches to the
 
18 product or mass under subsection (c), the following rules
 
19 determine priority:
 
20      (1)  A security interest that is perfected under subsection
 
21           (d) has priority over a security interest that is
 
22           unperfected at the time the collateral becomes
 
23           commingled goods.
 

 
Page 106                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (2)  If more than one security interest is perfected under
 
 2           subsection (d), the security interests rank equally in
 
 3           proportion to value of the collateral at the time it
 
 4           became commingled goods.
 
 5      490:9-337  Priority of security interests in goods covered
 
 6 by certificate of title.  If, while a security interest in goods
 
 7 is perfected by any method under the law of another jurisdiction,
 
 8 this State issues a certificate of title that does not show that
 
 9 the goods are subject to the security interest or contain a
 
10 statement that they may be subject to security interests not
 
11 shown on the certificate:
 
12      (1)  A buyer of the goods, other than a person in the
 
13           business of selling goods of that kind, takes free of
 
14           the security interest if the buyer gives value and
 
15           receives delivery of the goods after issuance of the
 
16           certificate and without knowledge of the security
 
17           interest; and
 
18      (2)  The security interest is subordinate to a conflicting
 
19           security interest in the goods that attaches, and is
 
20           perfected under section 490:9-311(b), after issuance of
 
21           the certificate and without the conflicting secured
 
22           party's knowledge of the security interest.
 
23      490:9-338  Priority of security interest or agricultural
 

 


 

Page 107                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 lien perfected by filed financing statement providing certain
 
 2 incorrect information.  If a security interest or agricultural
 
 3 lien is perfected by a filed financing statement providing
 
 4 information described in section 490:9-516(b)(5) which is
 
 5 incorrect at the time the financing statement is filed:
 
 6      (1)  The security interest or agricultural lien is
 
 7           subordinate to a conflicting perfected security
 
 8           interest in the collateral to the extent that the
 
 9           holder of the conflicting security interest gives value
 
10           in reasonable reliance upon the incorrect information;
 
11           and
 
12      (2)  A purchaser, other than a secured party, of the
 
13           collateral takes free of the security interest or
 
14           agricultural lien to the extent that, in reasonable
 
15           reliance upon the incorrect information, the purchaser
 
16           gives value and, in the case of chattel paper,
 
17           documents, goods, instruments, or a security
 
18           certificate, receives delivery of the collateral.
 
19      490:9-339  Priority subject to subordination.  This article
 
20 does not preclude subordination by agreement by a person entitled
 
21 to priority.
 
22                    SUBPART 4.  RIGHTS OF BANK
 
23      490:9-340  Effectiveness of right of recoupment or set-off
 

 


 

Page 108                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 against deposit account.(a)  Except as otherwise provided in
 
 2 subsection (c), a bank with which a deposit account is maintained
 
 3 may exercise any right of recoupment or set-off against a secured
 
 4 party that holds a security interest in the deposit account.
 
 5      (b)  Except as otherwise provided in subsection (c), the
 
 6 application of this article to a security interest in a deposit
 
 7 account does not affect a right of recoupment or set-off of the
 
 8 secured party as to a deposit account maintained with the secured
 
 9 party.
 
10      (c)  The exercise by a bank of a set-off against a deposit
 
11 account is ineffective against a secured party that holds a
 
12 security interest in the deposit account which is perfected by
 
13 control under section 490:9-104(a)(3), if the set-off is based on
 
14 a claim against the debtor.
 
15      490:9-341  Bank's rights and duties with respect to deposit
 
16 account.  Except as otherwise provided in section 490:9-340(c),
 
17 and unless the bank otherwise agrees in an authenticated record,
 
18 a bank's rights and duties with respect to a deposit account
 
19 maintained with the bank are not terminated, suspended, or
 
20 modified by:
 
21      (1)  The creation, attachment, or perfection of a security
 
22           interest in the deposit account;
 
23      (2)  The bank's knowledge of the security interest; or
 

 
Page 109                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (3)  The bank's receipt of instructions from the secured
 
 2           party.
 
 3      490:9-342  Bank's right to refuse to enter into or disclose
 
 4 existence of control agreement.  This article does not require a
 
 5 bank to enter into an agreement of the kind described in section
 
 6 490:9-104(a)(2), even if its customer so requests or directs.  A
 
 7 bank that has entered into such an agreement is not required to
 
 8 confirm the existence of the agreement to another person unless
 
 9 requested to do so by its customer.
 
10                 PART 4.  RIGHTS OF THIRD PARTIES
 
11      490:9-401  Alienability of debtor's rights.(a)  Except as
 
12 otherwise provided in subsection (b) and sections 490:9-406,
 
13 490:9-407, 490:9-408, and 490:9-409, whether a debtor's rights in
 
14 collateral may be voluntarily or involuntarily transferred is
 
15 governed by law other than this article.
 
16      (b)  An agreement between the debtor and secured party which
 
17 prohibits a transfer of the debtor's rights in collateral or
 
18 makes the transfer a default does not prevent the transfer from
 
19 taking effect.
 
20      490:9-402  Secured party not obligated on contract of
 
21 debtor or in tort.  The existence of a security interest,
 
22 agricultural lien, or authority given to a debtor to dispose of
 
23 or use collateral, without more, does not subject a secured party
 

 
Page 110                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 to liability in contract or tort for the debtor's acts or
 
 2 omissions.
 
 3      490:9-403  Agreement not to assert defenses against
 
 4 assignee.  (a)  In this section, "value" has the meaning provided
 
 5 in section 490:3-303(a).
 
 6      (b)  Except as otherwise provided in this section, an
 
 7 agreement between an account debtor and an assignor not to assert
 
 8 against an assignee any claim or defense that the account debtor
 
 9 may have against the assignor is enforceable by an assignee that
 
10 takes an assignment:
 
11      (1)  For value;
 
12      (2)  In good faith;
 
13      (3)  Without notice of a claim of a property or possessory
 
14           right to the property assigned; and
 
15      (4)  Without notice of a defense or claim in recoupment of
 
16           the type that may be asserted against a person entitled
 
17           to enforce a negotiable instrument under section
 
18           490:3-305(a).
 
19      (c)  Subsection (b) does not apply to defenses of a type
 
20 that may be asserted against a holder in due course of a
 
21 negotiable instrument under section 490:3-305(b).
 
22      (d)  In a consumer transaction, if a record evidences the
 
23 account debtor's obligation, law other than this article requires
 

 
Page 111                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 that the record include a statement to the effect that the rights
 
 2 of an assignee are subject to claims or defenses that the account
 
 3 debtor could assert against the original obligee, and the record
 
 4 does not include such a statement:
 
 5      (1)  The record has the same effect as if the record
 
 6           included such a statement; and
 
 7      (2)  The account debtor may assert against an assignee those
 
 8           claims and defenses that would have been available if
 
 9           the record included such a statement.
 
10      (e)  This section is subject to law other than this article
 
11 which establishes a different rule for an account debtor who is
 
12 an individual and who incurred the obligation primarily for
 
13 personal, family, or household purposes.
 
14      (f)  Except as otherwise provided in subsection (d), this
 
15 section does not displace law other than this article which gives
 
16 effect to an agreement by an account debtor not to assert a claim
 
17 or defense against an assignee.
 
18      490:9-404  Rights acquired by assignee; claims and defenses
 
19 against assignee.(a)  Unless an account debtor has made an
 
20 enforceable agreement not to assert defenses or claims, and
 
21 subject to subsections (b) through (e), the rights of an assignee
 
22 are subject to:
 
23      (1)  All terms of the agreement between the account debtor
 

 
Page 112                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           and assignor and any defense or claim in recoupment
 
 2           arising from the transaction that gave rise to the
 
 3           contract; and
 
 4      (2)  Any other defense or claim of the account debtor
 
 5           against the assignor which accrues before the account
 
 6           debtor receives a notification of the assignment
 
 7           authenticated by the assignor or the assignee.
 
 8      (b)  Subject to subsection (c) and except as otherwise
 
 9 provided in subsection (d), the claim of an account debtor
 
10 against an assignor may be asserted against an assignee under
 
11 subsection (a) only to reduce the amount the account debtor owes.
 
12      (c)  This section is subject to law other than this article
 
13 which establishes a different rule for an account debtor who is
 
14 an individual and who incurred the obligation primarily for
 
15 personal, family, or household purposes.
 
16      (d)  In a consumer transaction, if a record evidences the
 
17 account debtor's obligation, law other than this article requires
 
18 that the record include a statement to the effect that the
 
19 account debtor's recovery against an assignee with respect to
 
20 claims and defenses against the assignor may not exceed amounts
 
21 paid by the account debtor under the record, and the record does
 
22 not include such a statement, the extent to which a claim of an
 
23 account debtor against the assignor may be asserted against an
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 assignee is determined as if the record included such a
 
 2 statement.
 
 3      (e)  This section does not apply to an assignment of a
 
 4 health-care-insurance receivable.
 
 5      409:9-405  Modification of assigned contract.(a)  A
 
 6 modification of or substitution for an assigned contract is
 
 7 effective against an assignee if made in good faith.  The
 
 8 assignee acquires corresponding rights under the modified or
 
 9 substituted contract.  The assignment may provide that the
 
10 modification or substitution is a breach of contract by the
 
11 assignor.  This subsection is subject to subsections (b) through
 
12 (d).
 
13      (b)  Subsection (a) applies to the extent that:
 
14      (1)  The right to payment or a part thereof under an
 
15           assigned contract has not been fully earned by
 
16           performance; or
 
17      (2)  The right to payment or a part thereof has been fully
 
18           earned by performance and the account debtor has not
 
19           received notification of the assignment under section
 
20           490:9-406(a).
 
21      (c)  This section is subject to law other than this article
 
22 which establishes a different rule for an account debtor who is
 
23 an individual and who incurred the obligation primarily for
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 personal, family, or household purposes.
 
 2      (d)  This section does not apply to an assignment of a
 
 3 health-care-insurance receivable.
 
 4      490:9-406  Discharge of account debtor; notification of
 
 5 assignment; identification and proof of assignment; restrictions
 
 6 on assignment of accounts, chattel paper, payment intangibles,
 
 7 and promissory notes ineffective.(a)  Subject to subsections
 
 8 (b) through (i), an account debtor on an account, chattel paper,
 
 9 or a payment intangible may discharge its obligation by paying
 
10 the assignor until, but not after, the account debtor receives a
 
11 notification, authenticated by the assignor or the assignee, that
 
12 the amount due or to become due has been assigned and that
 
13 payment is to be made to the assignee.  After receipt of the
 
14 notification, the account debtor may discharge its obligation by
 
15 paying the assignee and may not discharge the obligation by
 
16 paying the assignor.
 
17      (b)  Subject to subsection (h), notification is ineffective
 
18 under subsection (a):
 
19      (1)  If it does not reasonably identify the rights assigned;
 
20      (2)  To the extent that an agreement between an account
 
21           debtor and a seller of a payment intangible limits the
 
22           account debtor's duty to pay a person other than the
 
23           seller and the limitation is effective under law other
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           than this article; or
 
 2      (3)  At the option of an account debtor, if the notification
 
 3           notifies the account debtor to make less than the full
 
 4           amount of any installment or other periodic payment to
 
 5           the assignee, even if:
 
 6           (A)  Only a portion of the account, chattel paper, or
 
 7                general intangible has been assigned to that
 
 8                assignee;
 
 9           (B)  A portion has been assigned to another assignee;
 
10                or
 
11           (C)  The account debtor knows that the assignment to
 
12                that assignee is limited.
 
13      (c)  Subject to subsection (h), if requested by the account
 
14 debtor, an assignee shall seasonably furnish reasonable proof
 
15 that the assignment has been made.  Unless the assignee complies,
 
16 the account debtor may discharge its obligation by paying the
 
17 assignor, even if the account debtor has received a notification
 
18 under subsection (a).
 
19      (d)  Except as otherwise provided in subsection (e) and
 
20 sections 490:2A-303 and 490:9-407, and subject to subsection (h),
 
21 a term in an agreement between an account debtor and an assignor
 
22 or in a promissory note is ineffective to the extent that it:
 
23      (1)  Prohibits, restricts, or requires the consent of the
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           account debtor or person obligated on the promissory
 
 2           note to the assignment or transfer of, or the creation,
 
 3           attachment, perfection, or enforcement of a security
 
 4           interest in, the account, chattel paper, payment
 
 5           intangible, or promissory note; or
 
 6      (2)  Provides that the creation, attachment, perfection, or
 
 7           enforcement of the security interest may give rise to a
 
 8           default, breach, right of recoupment, claim, defense,
 
 9           termination, right of termination, or remedy under the
 
10           account, chattel paper, payment intangible, or
 
11           promissory note.
 
12      (e)  Subsection (d) does not apply to the sale of a payment
 
13 intangible or promissory note.
 
14      (f)  Except as otherwise provided in sections 490:2A-303 and
 
15 490:9-407, and subject to subsections (h) and (i), a rule of law,
 
16 statute, or regulation, that prohibits, restricts, or requires
 
17 the consent of a government, governmental body or official, or
 
18 account debtor to the assignment or transfer of, or creation of a
 
19 security interest in, an account or chattel paper is ineffective
 
20 to the extent that the rule of law, statute, or regulation:
 
21      (1)  Prohibits, restricts, or requires the consent of the
 
22           government, governmental body or official, or account
 
23           debtor to the assignment or transfer of, or the
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           creation, attachment, perfection, or enforcement of a
 
 2           security interest in, the account or chattel paper; or
 
 3      (2)  Provides that the creation, attachment, perfection, or
 
 4           enforcement of the security interest may give rise to a
 
 5           default, breach, right of recoupment, claim, defense,
 
 6           termination, right of termination, or remedy under the
 
 7           account or chattel paper.
 
 8      (g)  Subject to subsection (h), an account debtor may not
 
 9 waive or vary its option under subsection (b)(3).
 
10      (h)  This section is subject to law other than this article
 
11 which establishes a different rule for an account debtor who is
 
12 an individual and who incurred the obligation primarily for
 
13 personal, family, or household purposes.
 
14      (i)  This section does not apply to an assignment of a
 
15 health-care-insurance receivable.
 
16      490:9-407  Restrictions on creation or enforcement of
 
17 security interest in leasehold interest or in lessor's residual
 
18 interest.(a)  Except as otherwise provided in subsection (b), a
 
19 term in a lease agreement is ineffective to the extent that it:
 
20      (1)  Prohibits, restricts, or requires the consent of a
 
21           party to the lease to the creation, attachment,
 
22           perfection, or enforcement of a security interest in an
 
23           interest of a party under the lease contract or in the
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           lessor's residual interest in the goods; or
 
 2      (2)  Provides that the creation, attachment, perfection, or
 
 3           enforcement of the security interest may give rise to a
 
 4           default, breach, right of recoupment, claim, defense,
 
 5           termination, right of termination, or remedy under the
 
 6           lease.
 
 7      (b)  Except as otherwise provided in section 490:2A-303(7),
 
 8 a term described in subsection (a)(2) is effective to the extent
 
 9 that there is:
 
10      (1)  A transfer by the lessee of the lessee's right of
 
11           possession or use of the goods in violation of the
 
12           term; or
 
13      (2)  A delegation of a material performance of either party
 
14           to the lease contract in violation of the term.
 
15      (c)  The creation, attachment, perfection, or enforcement of
 
16 a security interest in the lessor's interest under the lease
 
17 contract or the lessor's residual interest in the goods is not a
 
18 transfer that materially impairs the lessee's prospect of
 
19 obtaining return performance or materially changes the duty of or
 
20 materially increases the burden or risk imposed on the lessee
 
21 within the purview of section 490:2A-303(4) unless, and then only
 
22 to the extent that, enforcement actually results in a delegation
 
23 of material performance of the lessor.  Even in that event, the
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 creation, attachment, perfection, and enforcement of the security
 
 2 interest remain effective.
 
 3      490:9-408  Restrictions on assignment of promissory notes,
 
 4 health-care-insurance receivables, and certain general
 
 5 intangibles ineffective.(a)  Except as otherwise provided in
 
 6 subsection (b), a term in a promissory note or in an agreement
 
 7 between an account debtor and a debtor which relates to a health-
 
 8 care-insurance receivable or a general intangible, including a
 
 9 contract, permit, license, or franchise, and which term
 
10 prohibits, restricts, or requires the consent of the person
 
11 obligated on the promissory note or the account debtor to, the
 
12 assignment or transfer of, or creation, attachment, or perfection
 
13 of a security interest in, the promissory note, health-care-
 
14 insurance receivable, or general intangible, is ineffective to
 
15 the extent that the term:
 
16      (1)  Would impair the creation, attachment, or perfection of
 
17           a security interest; or
 
18      (2)  Provides that the creation, attachment, or perfection
 
19           of the security interest may give rise to a default,
 
20           breach, right of recoupment, claim, defense,
 
21           termination, right of termination, or remedy under the
 
22           promissory note, health-care-insurance receivable, or
 
23           general intangible.
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (b)  Subsection (a) applies to a security interest in a
 
 2 payment intangible or promissory note only if the security
 
 3 interest arises out of a sale of the payment intangible or
 
 4 promissory note.
 
 5      (c)  A rule of law, statute, or regulation, that prohibits,
 
 6 restricts, or requires the consent of a government, governmental
 
 7 body or official, person obligated on a promissory note, or
 
 8 account debtor to the assignment or transfer of, or creation of a
 
 9 security interest in, a promissory note, health-care-insurance
 
10 receivable, or general intangible, including a contract, permit,
 
11 license, or franchise between an account debtor and a debtor, is
 
12 ineffective to the extent that the rule of law, statute, or
 
13 regulation:
 
14      (1)  Would impair the creation, attachment, or perfection of
 
15           a security interest; or
 
16      (2)  Provides that the creation, attachment, or perfection
 
17           of the security interest may give rise to a default,
 
18           breach, right of recoupment, claim, defense,
 
19           termination, right of termination, or remedy under the
 
20           promissory note, health-care-insurance receivable, or
 
21           general intangible.
 
22      (d)  To the extent that a term in a promissory note or in an
 
23 agreement between an account debtor and a debtor which relates to
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 a health-care-insurance receivable or general intangible or a
 
 2 rule of law, statute, or regulation described in subsection (c)
 
 3 would be effective under law other than this article but is
 
 4 ineffective under subsection (a) or (c), the creation,
 
 5 attachment, or perfection of a security interest in the
 
 6 promissory note, health-care-insurance receivable, or general
 
 7 intangible:
 
 8      (1)  Is not enforceable against the person obligated on the
 
 9           promissory note or the account debtor;
 
10      (2)  Does not impose a duty or obligation on the person
 
11           obligated on the promissory note or the account debtor;
 
12      (3)  Does not require the person obligated on the promissory
 
13           note or the account debtor to recognize the security
 
14           interest, pay or render performance to the secured
 
15           party, or accept payment or performance from the
 
16           secured party;
 
17      (4)  Does not entitle the secured party to use or assign the
 
18           debtor's rights under the promissory note, health-
 
19           care-insurance receivable, or general intangible,
 
20           including any related information or materials
 
21           furnished to the debtor in the transaction giving rise
 
22           to the promissory note, health-care-insurance
 
23           receivable, or general intangible;
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (5)  Does not entitle the secured party to use, assign,
 
 2           possess, or have access to any trade secrets or
 
 3           confidential information of the person obligated on the
 
 4           promissory note or the account debtor; and
 
 5      (6)  Does not entitle the secured party to enforce the
 
 6           security interest in the promissory note, health-care-
 
 7           insurance receivable, or general intangible.
 
 8      490:9-409  Restrictions on assignment of letter-of-credit
 
 9 rights ineffective.(a)  A term in a letter of credit or a rule
 
10 of law, statute, regulation, custom, or practice applicable to
 
11 the letter of credit which prohibits, restricts, or requires the
 
12 consent of an applicant, issuer, or nominated person to a
 
13 beneficiary's assignment of or creation of a security interest in
 
14 a letter-of-credit right is ineffective to the extent that the
 
15 term or rule of law, statute, regulation, custom, or practice:
 
16      (1)  Would impair the creation, attachment, or perfection of
 
17           a security interest in the letter-of-credit right; or
 
18      (2)  Provides that the creation, attachment, or perfection
 
19           of the security interest may give rise to a default,
 
20           breach, right of recoupment, claim, defense,
 
21           termination, right of termination, or remedy under the
 
22           letter-of-credit right.
 
23      (b)  To the extent that a term in a letter of credit is
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 ineffective under subsection (a) but would be effective under law
 
 2 other than this article or a custom or practice applicable to the
 
 3 letter of credit, to the transfer of a right to draw or otherwise
 
 4 demand performance under the letter of credit, or to the
 
 5 assignment of a right to proceeds of the letter of credit, the
 
 6 creation, attachment, or perfection of a security interest in the
 
 7 letter-of-credit right:
 
 8      (1)  Is not enforceable against the applicant, issuer,
 
 9           nominated person, or transferee beneficiary;
 
10      (2)  Imposes no duties or obligations on the applicant,
 
11           issuer, nominated person, or transferee beneficiary;
 
12           and
 
13      (3)  Does not require the applicant, issuer, nominated
 
14           person, or transferee beneficiary to recognize the
 
15           security interest, pay or render performance to the
 
16           secured party, or accept payment or other performance
 
17           from the secured party.
 
18                          PART 5.  FILING
 
19              SUBPART 1.  FILING OFFICE; CONTENTS AND
 
20               EFFECTIVENESS OF FINANCING STATEMENT
 
21      490:9-501  Filing office.(a)  Except as otherwise
 
22 provided in subsection (b), if the local law of this State
 
23 governs perfection of a security interest or agricultural lien,
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 the office in which to file a financing statement to perfect the
 
 2 security interest or agricultural lien is:
 
 3      (1)  The office designated for the filing or recording of a
 
 4           record of a mortgage on the related real property, if:
 
 5           (A)  The collateral is as-extracted collateral or
 
 6                timber to be cut; or
 
 7           (B)  The financing statement is filed as a fixture
 
 8                filing and the collateral is goods that are or are
 
 9                to become fixtures; or
 
10      (2)  The bureau of conveyances, in all other cases,
 
11           including a case in which the collateral is goods that
 
12           are or are to become fixtures and the financing
 
13           statement is not filed as a fixture filing.
 
14      (b)  The office in which to file a financing statement to
 
15 perfect a security interest in collateral, including fixtures, of
 
16 a transmitting utility is the bureau of conveyances.  The
 
17 financing statement also constitutes a fixture filing as to the
 
18 collateral indicated in the financing statement which is or is to
 
19 become fixtures.
 
20      490:9-502  Contents of financing statement; record of
 
21 mortgage as financing statement; time of filing financing
 
22 statement.(a)  Subject to subsection (b), a financing statement
 
23 is sufficient only if it:
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (1)  Provides the name of the debtor;
 
 2      (2)  Provides the name of the secured party or a
 
 3           representative of the secured party; and
 
 4      (3)  Indicates the collateral covered by the financing
 
 5           statement.
 
 6      (b)  Except as otherwise provided in section 490:9-501(b),
 
 7 to be sufficient, a financing statement that covers as-extracted
 
 8 collateral or timber to be cut, or which is filed as a fixture
 
 9 filing and covers goods that are or are to become fixtures, must
 
10 satisfy subsection (a) and also:
 
11      (1)  Indicate that it covers this type of collateral;
 
12      (2)  Indicate that it is to be filed for record in the real
 
13           property records;
 
14      (3)  Provide a description of the real property to which the
 
15           collateral is related; and
 
16      (4)  If the debtor does not have an interest of record in
 
17           the real property, provide the name of a record owner.
 
18      (c)  A record of a mortgage is effective, from the date of
 
19 recording, as a financing statement filed as a fixture filing or
 
20 as a financing statement covering as-extracted collateral or
 
21 timber to be cut only if:
 
22      (1)  The record indicates the goods or accounts that it
 
23           covers;
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (2)  The goods are or are to become fixtures related to the
 
 2           real property described in the record or the collateral
 
 3           is related to the real property described in the record
 
 4           and is as-extracted collateral or timber to be cut;
 
 5      (3)  The record satisfies with the requirements for a
 
 6           financing statement in this section other than an
 
 7           indication that it is to be filed in the real property
 
 8           records; and
 
 9      (4)  The record is duly recorded.
 
10      (d)  A financing statement may be filed before a security
 
11 agreement is made or a security interest otherwise attaches.
 
12      490:9-503  Name of debtor and secured party.(a)  A
 
13 financing statement sufficiently provides the name of the debtor:
 
14      (1)  If the debtor is a registered organization, only if the
 
15           financing statement provides the name of the debtor
 
16           indicated on the public record of the debtor's
 
17           jurisdiction of organization which shows the debtor to
 
18           have been organized;
 
19      (2)  If the debtor is a decedent's estate, only if the
 
20           financing statement provides the name of the decedent
 
21           and indicates that the debtor is an estate;
 
22      (3)  If the debtor is a trust or a trustee acting with
 
23           respect to property held in trust, only if the
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           financing statement:
 
 2           (A)  Provides the name specified for the trust in its
 
 3                organic documents or, if no name is specified,
 
 4                provides the name of the settlor and additional
 
 5                information sufficient to distinguish the debtor
 
 6                from other trusts having one or more of the same
 
 7                settlors; and
 
 8           (B)  Indicates, in the debtor's name or otherwise, that
 
 9                the debtor is a trust or is a trustee acting with
 
10                respect to property held in trust; and
 
11      (4)  In other cases:
 
12           (A)  If the debtor has a name, only if it provides the
 
13                individual or organizational name of the debtor;
 
14                and
 
15           (B)  If the debtor does not have a name, only if it
 
16                provides the names of the partners, members,
 
17                associates, or other persons comprising the
 
18                debtor.
 
19      (b)  A financing statement that provides the name of the
 
20 debtor in accordance with subsection (a) is not rendered
 
21 ineffective by the absence of:
 
22      (1)  A trade name or other name of the debtor; or
 
23      (2)  Unless required under subsection (a)(4)(B), names of
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           partners, members, associates, or other persons
 
 2           comprising the debtor.
 
 3      (c)  A financing statement that provides only the debtor's
 
 4 trade name does not sufficiently provide the name of the debtor.
 
 5      (d)  Failure to indicate the representative capacity of a
 
 6 secured party or representative of a secured party does not
 
 7 affect the sufficiency of a financing statement.
 
 8      (e)  A financing statement may provide the name of more than
 
 9 one debtor and the name of more than one secured party.
 
10      490:9-504  Indication of collateral.  A financing statement
 
11 sufficiently indicates the collateral that it covers only if the
 
12 financing statement provides:
 
13      (1)  A description of the collateral pursuant to section
 
14           490:9-108; or
 
15      (2)  An indication that the financing statement covers all
 
16           assets or all personal property.
 
17      490:9-505  Filing and compliance with other statutes and
 
18 treaties for consignments, leases, other bailments, and other
 
19 transactions.(a)  A consignor, lessor, or other bailor of
 
20 goods, a licensor, or a buyer of a payment intangible or
 
21 promissory note may file a financing statement, or may comply
 
22 with a statute or treaty described in section 490:9-311(a), using
 
23 the terms "consignor", "consignee", "lessor", "lessee", "bailor",
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 "bailee", "licensor", "licensee", "owner", "registered owner",
 
 2 "buyer", "seller", or words of similar import, instead of the
 
 3 terms "secured party" and "debtor".
 
 4      (b)  This part applies to the filing of a financing
 
 5 statement under subsection (a) and, as appropriate, to compliance
 
 6 that is equivalent to filing a financing statement under section
 
 7 490:9-311(b), but the filing or compliance is not of itself a
 
 8 factor in determining whether the collateral secures an
 
 9 obligation.  If it is determined for another reason that the
 
10 collateral secures an obligation, a security interest held by the
 
11 consignor, lessor, bailor, licensor, owner, or buyer which
 
12 attaches to the collateral is perfected by the filing or
 
13 compliance.
 
14      490:9-506  Effect of errors or omissions.(a)  A financing
 
15 statement substantially satisfying the requirements of this part
 
16 is effective, even if it has minor errors or omissions, unless
 
17 the errors or omissions make the financing statement seriously
 
18 misleading.
 
19      (b)  Except as otherwise provided in subsection (c), a
 
20 financing statement that fails sufficiently to provide the name
 
21 of the debtor in accordance with section 490:9-503(a) is
 
22 seriously misleading.
 
23      (c)  If a search of the records of the filing office under
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 the debtor's correct name, using the filing office's standard
 
 2 search logic, if any, would disclose a financing statement that
 
 3 fails sufficiently to provide the name of the debtor in
 
 4 accordance with section 490:9-503(a), the name provided does not
 
 5 make the financing statement seriously misleading.
 
 6      (d)  For purposes of section 490:9-508(b), the "debtor's
 
 7 correct name" in subsection (c) means the correct name of the new
 
 8 debtor.
 
 9      490:9-507  Effect of certain events on effectiveness of
 
10 financing statement.(a)  A filed financing statement remains
 
11 effective with respect to collateral that is sold, exchanged,
 
12 leased, licensed, or otherwise disposed of and in which a
 
13 security interest or agricultural lien continues, even if the
 
14 secured party knows of or consents to the disposition.
 
15      (b)  Except as otherwise provided in subsection (c) and
 
16 section 490:9-508, a financing statement is not rendered
 
17 ineffective if, after the financing statement is filed, the
 
18 information provided in the financing statement becomes seriously
 
19 misleading under section 490:9-506.
 
20      (c)  If a debtor so changes its name that a filed financing
 
21 statement becomes seriously misleading under section 490:9-506:
 
22      (1)  The financing statement is effective to perfect a
 
23           security interest in collateral acquired by the debtor
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           before, or within four months after, the change; and
 
 2      (2)  The financing statement is not effective to perfect a
 
 3           security interest in collateral acquired by the debtor
 
 4           more than four months after the change, unless an
 
 5           amendment to the financing statement which renders the
 
 6           financing statement not seriously misleading is filed
 
 7           within four months after the change.
 
 8      490:9-508  Effectiveness of financing statement if new
 
 9 debtor becomes bound by security agreement.(a)  Except as
 
10 otherwise provided in this section, a filed financing statement
 
11 naming an original debtor is effective to perfect a security
 
12 interest in collateral in which a new debtor has or acquires
 
13 rights to the extent that the financing statement would have been
 
14 effective had the original debtor acquired rights in the
 
15 collateral.
 
16      (b)  If the difference between the name of the original
 
17 debtor and that of the new debtor causes a filed financing
 
18 statement that is effective under subsection (a) to be seriously
 
19 misleading under section 490:9-506:
 
20      (1)  The financing statement is effective to perfect a
 
21           security interest in collateral acquired by the new
 
22           debtor before, and within four months after, the new
 
23           debtor becomes bound under section 490:9-203(d); and
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (2)  The financing statement is not effective to perfect a
 
 2           security interest in collateral acquired by the new
 
 3           debtor more than four months after the new debtor
 
 4           becomes bound under section 490:9-203(d) unless an
 
 5           initial financing statement providing the name of the
 
 6           new debtor is filed before the expiration of that time.
 
 7      (c)  This section does not apply to collateral as to which a
 
 8 filed financing statement remains effective against the new
 
 9 debtor under section 490:9-507(a).
 
10      490:9-509  Persons entitled to file a record.(a)  A
 
11 person may file an initial financing statement, amendment that
 
12 adds collateral covered by a financing statement, or amendment
 
13 that adds a debtor to a financing statement only if:
 
14      (1)  The debtor authorizes the filing in an authenticated
 
15           record; or
 
16      (2)  The person holds an agricultural lien that has become
 
17           effective at the time of filing and the financing
 
18           statement covers only collateral in which the person
 
19           holds an agricultural lien.
 
20      (b)  By authenticating or becoming bound as debtor by a
 
21 security agreement, a debtor or new debtor authorizes the filing
 
22 of an initial financing statement, and an amendment, covering:
 
23      (1)  The collateral described in the security agreement; and
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (2)  Property that becomes collateral under section
 
 2           490:9-315(a)(2), whether or not the security agreement
 
 3           expressly covers proceeds.
 
 4      (c)  A person may file an amendment other than an amendment
 
 5 that adds collateral covered by a financing statement or an
 
 6 amendment that adds a debtor to a financing statement only if:
 
 7      (1)  The secured party of record authorizes the filing; or
 
 8      (2)  The amendment is a termination statement for a
 
 9           financing statement as to which the secured party of
 
10           record has failed to file or send a termination
 
11           statement as required by section 490:9-513(a) or (c),
 
12           the debtor authorizes the filing, and the termination
 
13           statement indicates that the debtor authorized it to be
 
14           filed.
 
15      (d)  If there is more than one secured party of record for a
 
16 financing statement, each secured party of record may authorize
 
17 the filing of an amendment under subsection (c).
 
18      490:9-510  Effectiveness of filed record.(a)  A filed
 
19 record is effective only to the extent that it was filed by a
 
20 person that may file it under section 490:9-509.
 
21      (b)  A record authorized by one secured party of record does
 
22 not affect the financing statement with respect to another
 
23 secured party of record.
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (c)  A continuation statement that is not filed within the
 
 2 six-month period prescribed by section 490:9-515(d) is
 
 3 ineffective.
 
 4      490:9-511  Secured party of record.(a)  A secured party
 
 5 of record with respect to a financing statement is a person whose
 
 6 name is provided as the name of the secured party or a
 
 7 representative of the secured party in an initial financing
 
 8 statement that has been filed.  If an initial financing statement
 
 9 is filed under section 490:9-514(a), the assignee named in the
 
10 initial financing statement is the secured party of record with
 
11 respect to the financing statement.
 
12      (b)  If an amendment of a financing statement which provides
 
13 the name of a person as a secured party or a representative of a
 
14 secured party is filed, the person named in the amendment is a
 
15 secured party of record.  If an amendment is filed under section
 
16 490:9-514(b), the assignee named in the amendment is a secured
 
17 party of record.
 
18      (c)  A person remains a secured party of record until the
 
19 filing of an amendment of the financing statement which deletes
 
20 the person.
 
21      490:9-512  Amendment of financing statement.(a)  Subject
 
22 to section 490:9-509, a person may add or delete collateral
 
23 covered by, continue or terminate the effectiveness of, or,
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 subject to subsection (e), otherwise amend the information
 
 2 provided in, a financing statement by filing an amendment that:
 
 3      (1)  Identifies, by its file number, the initial financing
 
 4           statement to which the amendment relates; and
 
 5      (2)  If the amendment relates to an initial financing
 
 6           statement filed in a filing office described in section
 
 7           490:9-501(a)(1), provides the information specified in
 
 8           section 490:9-502(b).
 
 9      (b)  Except as otherwise provided in section 490:9-515, the
 
10 filing of an amendment does not extend the period of
 
11 effectiveness of the financing statement.
 
12      (c)  A financing statement that is amended by an amendment
 
13 that adds collateral is effective as to the added collateral only
 
14 from the date of the filing of the amendment.
 
15      (d)  A financing statement that is amended by an amendment
 
16 that adds a debtor is effective as to the added debtor only from
 
17 the date of the filing of the amendment.
 
18      (e)  An amendment is ineffective to the extent it:
 
19      (1)  Purports to delete all debtors and fails to provide the
 
20           name of a debtor to be covered by the financing
 
21           statement; or
 
22      (2)  Purports to delete all secured parties of record and
 
23           fails to provide the name of a new secured party of
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           record.
 
 2      490:9-513  Termination statement.(a)  A secured party
 
 3 shall cause the secured party of record for a financing statement
 
 4 to file a termination statement for the financing statement if
 
 5 the financing statement covers consumer goods and:
 
 6      (1)  There is no obligation secured by the collateral
 
 7           covered by the financing statement and no commitment to
 
 8           make an advance, incur an obligation, or otherwise give
 
 9           value; or
 
10      (2)  The debtor did not authorize the filing of the initial
 
11           financing statement.
 
12      (b)  To comply with subsection (a), a secured party shall
 
13 cause the secured party of record to file the termination
 
14 statement:
 
15      (1)  Within one month after there is no obligation secured
 
16           by the collateral covered by the financing statement
 
17           and no commitment to make an advance, incur an
 
18           obligation, or otherwise give value; or
 
19      (2)  If earlier, within twenty days after the secured party
 
20           receives an authenticated demand from a debtor.
 
21      (c)  In cases not governed by subsection (a), within twenty
 
22 days after a secured party receives an authenticated demand from
 
23 a debtor, the secured party shall cause the secured party of
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 record for a financing statement to send to the debtor a
 
 2 termination statement for the financing statement or file the
 
 3 termination statement in the filing office if:
 
 4      (1)  Except in the case of a financing statement covering
 
 5           accounts or chattel paper that has been sold or goods
 
 6           that are the subject of a consignment, there is no
 
 7           obligation secured by the collateral covered by the
 
 8           financing statement and no commitment to make an
 
 9           advance, incur an obligation, or otherwise give value;
 
10      (2)  The financing statement covers accounts or chattel
 
11           paper that has been sold but as to which the account
 
12           debtor or other person obligated has discharged its
 
13           obligation;
 
14      (3)  The financing statement covers goods that were the
 
15           subject of a consignment to the debtor but are not in
 
16           the debtor's possession; or
 
17      (4)  The debtor did not authorize the filing of the initial
 
18           financing statement.
 
19      (d)  Except as otherwise provided in section 490:9-510, upon
 
20 the filing of a termination statement with the filing office, the
 
21 financing statement to which the termination statement relates
 
22 ceases to be effective.
 
23      490:9-514  Assignment of powers of secured party of record.
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 (a)  Except as otherwise provided in subsection (c), an initial
 
 2 financing statement may reflect an assignment of all of the
 
 3 secured party's power to authorize an amendment to the financing
 
 4 statement by providing the name and mailing address of the
 
 5 assignee as the name and address of the secured party.
 
 6      (b)  Except as otherwise provided in subsection (c), a
 
 7 secured party of record may assign of record all or part of its
 
 8 power to authorize an amendment to a financing statement by
 
 9 filing in the filing office an amendment of the financing
 
10 statement which:
 
11      (1)  Identifies, by its file number, the initial financing
 
12           statement to which it relates;
 
13      (2)  Provides the name of the assignor; and
 
14      (3)  Provides the name and mailing address of the assignee.
 
15      (c)  An assignment of record of a security interest in a
 
16 fixture covered by a record of a mortgage which is effective as a
 
17 financing statement filed as a fixture filing under section
 
18 490:9-502(c) may be made only by an assignment of record of the
 
19 mortgage in the manner provided by law of this State other than
 
20 this chapter.
 
21      490:9-515  Duration and effectiveness of financing
 
22 statement; effect of lapsed financing statement.(a)  Except as
 
23 otherwise provided in subsections (b), (e), (f), and (g), a filed
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 financing statement is effective for a period of five years after
 
 2 the date of filing.
 
 3      (b)  Except as otherwise provided in subsections (e), (f),
 
 4 and (g), an initial financing statement filed in connection with
 
 5 a public-finance transaction or manufactured-home transaction is
 
 6 effective for a period of thirty years after the date of filing
 
 7 if it indicates that it is filed in connection with a public-
 
 8 finance transaction or manufactured-home transaction.
 
 9      (c)  The effectiveness of a filed financing statement lapses
 
10 on the expiration of the period of its effectiveness unless
 
11 before the lapse a continuation statement is filed pursuant to
 
12 subsection (d).  Upon lapse, a financing statement ceases to be
 
13 effective and any security interest or agricultural lien that was
 
14 perfected by the financing statement becomes unperfected, unless
 
15 the security interest is perfected otherwise.  If the security
 
16 interest or agricultural lien becomes unperfected upon lapse, it
 
17 is deemed never to have been perfected as against a purchaser of
 
18 the collateral for value.
 
19      (d)  A continuation statement may be filed only within six
 
20 months before the expiration of the five-year period specified in
 
21 subsection (a) or the thirty-year period specified in subsection
 
22 (b), whichever is applicable.
 
23      (e)  Except as otherwise provided in section 490:9-510, upon
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 timely filing of a continuation statement, the effectiveness of
 
 2 the initial financing statement continues for a period of five
 
 3 years commencing on the day on which the financing statement
 
 4 would have become ineffective in the absence of the filing.  Upon
 
 5 the expiration of the five-year period, the financing statement
 
 6 lapses in the same manner as provided in subsection (c), unless,
 
 7 before the lapse, another continuation statement is filed
 
 8 pursuant to subsection (d).  Succeeding continuation statements
 
 9 may be filed in the same manner to continue the effectiveness of
 
10 the initial financing statement.
 
11      (f)  If a debtor is a transmitting utility and a filed
 
12 financing statement so indicates, the financing statement is
 
13 effective until a termination statement is filed.
 
14      (g)  A record of a mortgage that is effective as a financing
 
15 statement filed as a fixture filing under section 490:9-502(c)
 
16 remains effective as a financing statement filed as a fixture
 
17 filing until the mortgage is released or satisfied of record or
 
18 its effectiveness otherwise terminates as to the real property.
 
19      490:9-516  What constitutes filing; effectiveness of
 
20 filing.(a)  Except as otherwise provided in subsection (b),
 
21 communication of a record to a filing office and tender of the
 
22 filing fee or acceptance of the record by the filing office
 
23 constitutes filing.
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (b)  Filing does not occur with respect to a record that a
 
 2 filing office refuses to accept because:
 
 3      (1)  The record is not communicated by a method or medium of
 
 4           communication authorized by the filing office;
 
 5      (2)  An amount equal to or greater than the applicable
 
 6           filing fee is not tendered;
 
 7      (3)  The filing office is unable to index the record
 
 8           because:
 
 9           (A)  In the case of an initial financing statement, the
 
10                record does not provide a name for the debtor;
 
11           (B)  In the case of an amendment or correction
 
12                statement, the record:
 
13                (i)  Does not identify the initial financing
 
14                     statement as required by section 490:9-512 or
 
15                     490:9-518, as applicable; or
 
16               (ii)  Identifies an initial financing statement
 
17                     whose effectiveness has lapsed under section
 
18                     490:9-515;
 
19           (C)  In the case of an initial financing statement that
 
20                provides the name of a debtor identified as an
 
21                individual or an amendment that provides a name of
 
22                a debtor identified as an individual which was not
 
23                previously provided in the financing statement to
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1                which the record relates, the record does not
 
 2                identify the debtor's last name; or
 
 3           (D)  In the case of a record filed in the filing office
 
 4                described in section 490:9-501(a)(1), the record
 
 5                does not provide a sufficient description of the
 
 6                real property to which it relates;
 
 7      (4)  In the case of an initial financing statement or an
 
 8           amendment that adds a secured party of record, the
 
 9           record does not provide a name and mailing address for
 
10           the secured party of record;
 
11      (5)  In the case of an initial financing statement or an
 
12           amendment that provides a name of a debtor which was
 
13           not previously provided in the financing statement to
 
14           which the amendment relates, the record does not:
 
15           (A)  Provide a mailing address for the debtor;
 
16           (B)  Indicate whether the debtor is an individual or an
 
17                organization; or
 
18           (C)  If the financing statement indicates that the
 
19                debtor is an organization, provide:
 
20                (i)  A type of organization for the debtor;
 
21               (ii)  A jurisdiction of organization for the
 
22                     debtor; or
 
23              (iii)  An organizational identification number for
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1                     the debtor or indicate that the debtor has
 
 2                     none;
 
 3      (6)  In the case of an assignment reflected in an initial
 
 4           financing statement under section 490:9-514(a) or an
 
 5           amendment filed under section 490:9-514(b), the record
 
 6           does not provide a name and mailing address for the
 
 7           assignee; or
 
 8      (7)  In the case of a continuation statement, the record is
 
 9           not filed within the six-month period prescribed by
 
10           section 490:9-515(d).
 
11      (c)  For purposes of subsection (b):
 
12      (1)  A record does not provide information if the filing
 
13           office is unable to read or decipher the information;
 
14           and
 
15      (2)  A record that does not indicate that it is an amendment
 
16           or identify an initial financing statement to which it
 
17           relates, as required by section 490:9-512, 490:9-514,
 
18           or 490:9-518, is an initial financing statement.
 
19      (d)  A record that is communicated to the filing office with
 
20 tender of the filing fee, but which the filing office refuses to
 
21 accept for a reason other than one set forth in subsection (b),
 
22 is effective as a filed record except as against a purchaser of
 
23 the collateral which gives value in reasonable reliance upon the
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 absence of the record from the files.
 
 2      490:9-517  Effect of indexing errors.  The failure of the
 
 3 filing office to index a record correctly does not affect the
 
 4 effectiveness of the filed record.
 
 5      490:9-518  Claim concerning inaccurate or wrongfully filed
 
 6 record.(a)  A person may file in the filing office a correction
 
 7 statement with respect to a record indexed there under the
 
 8 person's name if the person believes that the record is
 
 9 inaccurate or was wrongfully filed.
 
10      (b)  A correction statement must:
 
11      (1)  Identify the record to which it relates by the file
 
12           number assigned to the initial financing statement to
 
13           which the record relates;
 
14      (2)  Indicate that it is a correction statement; and
 
15      (3)  Provide the basis for the person's belief that the
 
16           record is inaccurate and indicate the manner in which
 
17           the person believes the record should be amended to
 
18           cure any inaccuracy or provide the basis for the
 
19           person's belief that the record was wrongfully filed.
 
20      (c)  The filing of a correction statement does not affect
 
21 the effectiveness of an initial financing statement or other
 
22 filed record.
 
23         SUBPART 2.  DUTIES AND OPERATION OF FILING OFFICE
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      490:9-519  Numbering, maintaining, and indexing records;
 
 2 communicating information provided in records.(a)  For each
 
 3 record filed in a filing office, the filing office shall:
 
 4      (1)  Assign a unique number to the filed record;
 
 5      (2)  Create a record that bears the number assigned to the
 
 6           filed record and the date and time of filing;
 
 7      (3)  Maintain the filed record for public inspection; and
 
 8      (4)  Index the filed record in accordance with subsections
 
 9           (c), (d), and (e).
 
10      (b)  A file number must include a digit that:
 
11      (1)  Is mathematically derived from or related to the other
 
12           digits of the file number; and
 
13      (2)  Enables the filing office to detect whether a number
 
14           communicated as the file number includes a single-
 
15           digit or transpositional error.
 
16      (c)  Except as otherwise provided in subsections (d) and
 
17 (e), the filing office shall:
 
18      (1)  Index an initial financing statement according to the
 
19           name of the debtor and index all filed records relating
 
20           to the initial financing statement in a manner that
 
21           associates with one another an initial financing
 
22           statement and all filed records relating to the initial
 
23           financing statement; and
 

 
Page 146                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (2)  Index a record that provides a name of a debtor which
 
 2           was not previously provided in the financing statement
 
 3           to which the record relates also according to the name
 
 4           that was not previously provided.
 
 5      (d)  If a financing statement is filed as a fixture filing
 
 6 or covers as-extracted collateral or timber to be cut, the filing
 
 7 office shall index it:
 
 8      (1)  Under the names of the debtor and of each owner of
 
 9           record shown on the financing statement as if they were
 
10           the mortgagors under a mortgage of the real property
 
11           described; and
 
12      (2)  To the extent that the law of this State provides for
 
13           indexing of records of mortgages under the name of the
 
14           mortgagee, under the name of the secured party as if
 
15           the secured party were the mortgagee thereunder, or, if
 
16           indexing is by description, as if the financing
 
17           statement were a record of a mortgage of the real
 
18           property described.
 
19      (e)  If a financing statement is filed as a fixture filing
 
20 or covers as-extracted collateral or timber to be cut, the filing
 
21 office shall index an assignment filed under section 490:9-514(a)
 
22 or an amendment filed under section 490:9-514(b):
 
23      (1)  Under the name of the assignor as grantor; and
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (2)  To the extent that the law of this State provides for
 
 2           indexing a record of the assignment of a mortgage under
 
 3           the name of the assignee, under the name of the
 
 4           assignee.
 
 5      (f)  The filing office shall maintain a capability:
 
 6      (1)  To retrieve a record by the name of the debtor and by
 
 7           the file number assigned to the initial financing
 
 8           statement to which the record relates; and
 
 9      (2)  To associate and retrieve with one another an initial
 
10           financing statement and each filed record relating to
 
11           the initial financing statement.
 
12      (g)  The filing office may not remove a debtor's name from
 
13 the index until one year after the effectiveness of a financing
 
14 statement naming the debtor lapses under section 490:9-515 with
 
15 respect to all secured parties of record.
 
16      (h)  The filing office shall perform the acts required by
 
17 subsections (a) through (e) at the time and in the manner
 
18 prescribed by filing-office rule, but not later than two business
 
19 days after the filing office receives the record in question.
 
20      490:9-520  Acceptance and refusal to accept record.(a)  A
 
21 filing office shall refuse to accept a record for filing for a
 
22 reason set forth in section 490:9-516(b) and may refuse to accept
 
23 a record for filing only for a reason set forth in section
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 490:9-516(b).
 
 2      (b)  If a filing office refuses to accept a record for
 
 3 filing, it shall communicate to the person that presented the
 
 4 record the fact of and reason for the refusal and the date and
 
 5 time the record would have been filed had the filing office
 
 6 accepted it.  The communication must be made at the time and in
 
 7 the manner prescribed by filing-office rule in no event more than
 
 8 two business days after the filing office receives the record.
 
 9      (c)  A filed financing statement satisfying section
 
10 490:9-502(a) and (b) is effective, even if the filing office is
 
11 required to refuse to accept it for filing under subsection (a).
 
12 However, section 490:9-338 applies to a filed financing statement
 
13 providing information described in section 490:9-516(b)(5) which
 
14 is incorrect at the time the financing statement is filed.
 
15      (d)  If a record communicated to a filing office provides
 
16 information that relates to more than one debtor, this part
 
17 applies as to each debtor separately.
 
18      490:9-521  Uniform form of written financing statement and
 
19 amendment.(a)  A filing office that accepts written records may
 
20 not refuse to accept a written initial financing statement in the
 
21 following form and format except for a reason set forth in
 
22 section 490:9-516(b):
 
23      (b)  A filing office that accepts written records may not
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 refuse to accept a written record in the following form and
 
 2 format except for a reason set forth in section 490:9-516(b):
 
 3      490:9-522  Maintenance and destruction of records.(a)
 
 4 The filing office shall maintain a record of the information
 
 5 provided in a filed financing statement for at least one year
 
 6 after the effectiveness of the financing statement has lapsed
 
 7 under section 490:9-515 with respect to all secured parties of
 
 8 record.  The record must be retrievable by using the name of the
 
 9 debtor and by using the file number assigned to the initial
 
10 financing statement to which the record relates.
 
11      (b)  Except to the extent that a statute governing
 
12 disposition of public records provides otherwise, the filing
 
13 office immediately may destroy any written record evidencing a
 
14 financing statement.  However, if the filing office destroys a
 
15 written record, it shall maintain another record of the financing
 
16 statement which complies with subsection (a).
 
17      490:9-523  Information from filing office; sale or license
 
18 of records.(a)  If a person that files a written record
 
19 requests an acknowledgment of the filing, the filing office shall
 
20 send to the person an image of the record showing the number
 
21 assigned to the record pursuant to section 490:9-519(a)(1) and
 
22 the date and time of the filing of the record.  However, if the
 
23 person furnishes a copy of the record to the filing office, the
 

 
Page 150                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 filing office may instead:
 
 2      (1)  Note upon the copy the number assigned to the record
 
 3           pursuant to section 490:9-519(a)(1) and the date and
 
 4           time of the filing of the record; and
 
 5      (2)  Send the copy to the person.
 
 6      (b)  If a person files a record other than a written record,
 
 7 the filing office shall communicate to the person an
 
 8 acknowledgment that provides:
 
 9      (1)  The information in the record;
 
10      (2)  The number assigned to the record pursuant to section
 
11           490:9-519(a)(1); and
 
12      (3)  The date and time of the filing of the record.
 
13      (c)  The filing office shall communicate or otherwise make
 
14 available in a record the following information to any person
 
15 that requests it:
 
16      (1)  Whether there is on file on a date and time specified
 
17           by the filing office, but not a date earlier than three
 
18           business days before the filing office receives the
 
19           request, any financing statement that:
 
20           (A)  Designates a particular debtor;
 
21           (B)  Has not lapsed under section 490:9-515 with
 
22                respect to all secured parties of record; and
 
23           (C)  If the request so states, has lapsed under section
 

 
Page 151                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1                490:9-515 and a record of which is maintained by
 
 2                the filing office under section 490:9-522(a);
 
 3      (2)  The date and time of filing of each financing
 
 4           statement; and
 
 5      (3)  The information provided in each financing statement.
 
 6      (d)  In complying with its duty under subsection (c), the
 
 7 filing office may communicate information in any medium. However,
 
 8 if requested, the filing office shall communicate information by
 
 9 issuing its written certificate.
 
10      (e)  The filing office shall perform the acts required by
 
11 subsections (a) through (d) at the time and in the manner
 
12 prescribed by filing-office rule, but not later than two business
 
13 days after the filing office receives the request.
 
14      (f)  At least weekly, the filing office shall offer to sell
 
15 or license to the public on a nonexclusive basis, in bulk, copies
 
16 of all records filed in it under this part, in every medium from
 
17 time to time available to the filing office.
 
18      490:9-524  Delay by filing office.  Delay by the filing
 
19 office beyond a time limit prescribed by this part is excused if:
 
20      (1)  The delay is caused by interruption of communication or
 
21           computer facilities, war, emergency conditions, failure
 
22           of equipment, or other circumstances beyond control of
 
23           the filing office; and
 

 
Page 152                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (2)  The filing office exercises reasonable diligence under
 
 2           the circumstances.
 
 3      490:9-525  Fees.(a)  Except as otherwise provided in
 
 4 subsection (e), the fee for filing and indexing a record under
 
 5 this part, other than an initial financing statement of the kind
 
 6 described in section 490:9-502(c), shall be as specified by rules
 
 7 adopted under section 502-25 by the department of land and
 
 8 natural resources pursuant to chapter 91.
 
 9      (b)  Except as otherwise provided in subsection (e), the fee
 
10 for filing and indexing an initial financing statement of the
 
11 kind described in section 490:9-502(c) shall be as specified by
 
12 rules adopted under section 502-25 by the department of land and
 
13 natural resources pursuant to chapter 91.
 
14      (c)  The number of names required to be indexed does not
 
15 affect the amount of the fee in subsections (a) and (b).
 
16      (d)  The fee for responding to a request for information
 
17 from the filing office, including for issuing a certificate
 
18 showing whether there is on file any financing statement naming a
 
19 particular debtor shall be as specified by rules adopted under
 
20 section 502-25 by the department of land and natural resources
 
21 pursuant to chapter 91.
 
22      (e)  This section does not require a fee with respect to a
 
23 record of a mortgage which is effective as a financing statement
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 filed as a fixture filing or as a financing statement covering
 
 2 as-extracted collateral or timber to be cut under section
 
 3 490:9-502(c).  However, the recording and satisfaction fees that
 
 4 otherwise would be applicable to the record of the mortgage
 
 5 apply.
 
 6      490:9-526  Filing-office rules.(a)  The department of
 
 7 land and natural resources shall adopt and publish rules to
 
 8 implement this article.  The filing-office rules must be:
 
 9      (1)  Consistent with this article; and
 
10      (2)  Adopted and published in accordance with chapter 91.
 
11      (b)  To keep the filing-office rules and practices of the
 
12 filing office in harmony with the rules and practices of filing
 
13 offices in other jurisdictions that enact substantially this
 
14 part, and to keep the technology used by the filing office
 
15 compatible with the technology used by filing offices in other
 
16 jurisdictions that enact substantially this part, the filing
 
17 office, so far as is consistent with the purposes, policies, and
 
18 provisions of this article, in adopting, amending, and repealing
 
19 filing-office rules, shall:
 
20      (1)  Consult with filing offices in other jurisdictions that
 
21           enact substantially this part; and
 
22      (2)  Consult the most recent version of the Model Rules
 
23           promulgated by the International Association of
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           Corporate Administrators or any successor organization;
 
 2           and
 
 3      (3)  Take into consideration the rules and practices of, and
 
 4           the technology used by, filing offices in other
 
 5           jurisdictions that enact substantially this part.
 
 6      490:9-527  Duty to report.  The department of land and
 
 7 natural resources shall report annually, twenty days before the
 
 8 convening of each regular session of the legislature, to the
 
 9 governor and the legislature on the operation of the filing
 
10 office.  The report must contain a statement of the extent to
 
11 which:
 
12      (1)  The filing-office rules are not in harmony with the
 
13           rules of filing offices in other jurisdictions that
 
14           enact substantially this part and the reasons for these
 
15           variations; and
 
16      (2)  The filing-office rules are not in harmony with the
 
17           most recent version of the Model Rules promulgated by
 
18           the International Association of Corporate
 
19           Administrators, or any successor organization, and the
 
20           reasons for these variations.
 
21                         PART 6.  DEFAULT
 
22     SUBPART 1.  DEFAULT AND ENFORCEMENT OF SECURITY INTEREST
 
23      490:9-601  Rights after default; judicial enforcement;
 

 


 

Page 155                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 consignor or buyer of accounts, chattel paper, payment
 
 2 intangibles, or promissory notes.(a)  After default, a secured
 
 3 party has the rights provided in this part and, except as
 
 4 otherwise provided in section 490:9-602, those provided by
 
 5 agreement of the parties.  A secured party:
 
 6      (1)  May reduce a claim to judgment, foreclose, or otherwise
 
 7           enforce the claim, security interest, or agricultural
 
 8           lien by any available judicial procedure; and
 
 9      (2)  If the collateral is documents, may proceed either as
 
10           to the documents or as to the goods they cover.
 
11      (b)  A secured party in possession of collateral or control
 
12 of collateral under section 490:9-104, 490:9-105, 490:9-106, or
 
13 490:9-107 has the rights and duties provided in section
 
14 490:9-207.
 
15      (c)  The rights under subsections (a) and (b) are cumulative
 
16 and may be exercised simultaneously.
 
17      (d)  Except as otherwise provided in subsection (g) and
 
18 section 490:9-605, after default, a debtor and an obligor have
 
19 the rights provided in this part and by agreement of the parties.
 
20      (e)  If a secured party has reduced its claim to judgment,
 
21 the lien of any levy that may be made upon the collateral by
 
22 virtue of an execution based upon the judgment relates back to
 
23 the earliest of:
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (1)  The date of perfection of the security interest or
 
 2           agricultural lien in the collateral;
 
 3      (2)  The date of filing a financing statement covering the
 
 4           collateral; or
 
 5      (3)  Any date specified in a statute under which the
 
 6           agricultural lien was created.
 
 7      (f)  A sale pursuant to an execution is a foreclosure of the
 
 8 security interest or agricultural lien by judicial procedure
 
 9 within the meaning of this section.  A secured party may purchase
 
10 at the sale and thereafter hold the collateral free of any other
 
11 requirements of this article.
 
12      (g)  Except as otherwise provided in section 490:9-607(c),
 
13 this part imposes no duties upon a secured party that is a
 
14 consignor or is a buyer of accounts, chattel paper, payment
 
15 intangibles, or promissory notes.
 
16      490:9-602  Waiver and variance of rights and duties.
 
17 Except as otherwise provided in section 490:9-624, to the extent
 
18 that they give rights to a debtor or obligor and impose duties on
 
19 a secured party, the debtor or obligor may not waive or vary the
 
20 rules stated in the following listed sections:
 
21      (1)  Section 490:9-207(b)(4)(C), which deals with use and
 
22           operation of the collateral by the secured party;
 
23      (2)  Section 490:9-210, which deals with requests for an
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           accounting and requests concerning a list of collateral
 
 2           and statement of account;
 
 3      (3)  Section 490:9-607(c), which deals with collection and
 
 4           enforcement of collateral;
 
 5      (4)  Sections 490:9-608(a) and 490:9-615(c) to the extent
 
 6           that they deal with application or payment of noncash
 
 7           proceeds of collection, enforcement, or disposition;
 
 8      (5)  Sections 490:9-608(a) and 490:9-615(d) to the extent
 
 9           that they require accounting for or payment of surplus
 
10           proceeds of collateral;
 
11      (6)  Section 490:9-609 to the extent that it imposes upon a
 
12           secured party that takes possession of collateral
 
13           without judicial process the duty to do so without
 
14           breach of the peace;
 
15      (7)  Sections 490:9-610(b), 490:9-611, 490:9-613, and
 
16           490:9-614, which deal with disposition of collateral;
 
17      (8)  Section 490:9-615(f), which deals with calculation of a
 
18           deficiency or surplus when a disposition is made to the
 
19           secured party, a person related to the secured party,
 
20           or a secondary obligor;
 
21      (9)  Section 490:9-616, which deals with explanation of the
 
22           calculation of a surplus or deficiency;
 
23     (10)  Sections 490:9-620, 490:9-621, and 490:9-622, which
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           deal with acceptance of collateral in satisfaction of
 
 2           obligation;
 
 3     (11)  Section 490:9-623, which deals with redemption of
 
 4           collateral;
 
 5     (12)  Section 490:9-624, which deals with permissible
 
 6           waivers; and
 
 7     (13)  Sections 490:9-625 and 490:9-626, which deal with the
 
 8           secured party's liability for failure to comply with
 
 9           this article.
 
10      490:9-603  Agreement on standards concerning rights and
 
11 duties.(a)  The parties may determine by agreement the
 
12 standards measuring the fulfillment of the rights of a debtor or
 
13 obligor and the duties of a secured party under a rule stated in
 
14 section 490:9-602 if the standards are not manifestly
 
15 unreasonable.
 
16      (b)  Subsection (a) does not apply to the duty under section
 
17 490:9-609 to refrain from breaching the peace.
 
18      490:9-604  Procedure if security agreement covers real
 
19 property or fixtures.(a)  If a security agreement covers both
 
20 personal and real property, a secured party may proceed:
 
21      (1)  Under this part as to the personal property without
 
22           prejudicing any rights with respect to the real
 
23           property; or
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (2)  As to both the personal property and the real property
 
 2           in accordance with the rights with respect to the real
 
 3           property, in which case the other provisions of this
 
 4           part do not apply.
 
 5      (b)  Subject to subsection (c), if a security agreement
 
 6 covers goods that are or become fixtures, a secured party may
 
 7 proceed:
 
 8      (1)  Under this part; or
 
 9      (2)  In accordance with the rights with respect to real
 
10           property, in which case the other provisions of this
 
11           part do not apply.
 
12      (c)  Subject to the other provisions of this part, if a
 
13 secured party holding a security interest in fixtures has
 
14 priority over all owners and encumbrancers of the real property,
 
15 the secured party, after default, may remove the collateral from
 
16 the real property.
 
17      (d)  A secured party that removes collateral shall promptly
 
18 reimburse any encumbrancer or owner of the real property, other
 
19 than the debtor, for the cost of repair of any physical injury
 
20 caused by the removal.  The secured party need not reimburse the
 
21 encumbrancer or owner for any diminution in value of the real
 
22 property caused by the absence of the goods removed or by any
 
23 necessity of replacing them.  A person entitled to reimbursement
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 may refuse permission to remove until the secured party gives
 
 2 adequate assurance for the performance of the obligation to
 
 3 reimburse.
 
 4      490:9-605  Unknown debtor or secondary obligor.  A secured
 
 5 party does not owe a duty based on its status as secured party:
 
 6      (1)  To a person that is a debtor or obligor, unless the
 
 7           secured party knows:
 
 8           (A)  That the person is a debtor or obligor;
 
 9           (B)  The identity of the person; and
 
10           (C)  How to communicate with the person; or
 
11      (2)  To a secured party or lienholder that has filed a
 
12           financing statement against a person, unless the
 
13           secured party knows:
 
14           (A)  That the person is a debtor; and
 
15           (B)  The identity of the person.
 
16      490:9-606  Time of default for agricultural lien.  For
 
17 purposes of this part, a default occurs in connection with an
 
18 agricultural lien at the time the secured party becomes entitled
 
19 to enforce the lien in accordance with the statute under which it
 
20 was created.
 
21      490:9-607  Collection and enforcement by secured party.
 
22 (a)  If so agreed, and in any event after default, a secured
 
23 party:
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (1)  May notify an account debtor or other person obligated
 
 2           on collateral to make payment or otherwise render
 
 3           performance to or for the benefit of the secured party;
 
 4      (2)  May take any proceeds to which the secured party is
 
 5           entitled under section 490:9-315;
 
 6      (3)  May enforce the obligations of an account debtor or
 
 7           other person obligated on collateral and exercise the
 
 8           rights of the debtor with respect to the obligation of
 
 9           the account debtor or other person obligated on
 
10           collateral to make payment or otherwise render
 
11           performance to the debtor, and with respect to any
 
12           property that secures the obligations of the account
 
13           debtor or other person obligated on the collateral;
 
14      (4)  If it holds a security interest in a deposit account
 
15           perfected by control under section 490:9-104(a)(1), may
 
16           apply the balance of the deposit account to the
 
17           obligation secured by the deposit account; and
 
18      (5)  If it holds a security interest in a deposit account
 
19           perfected by control under section 490:9-104(a)(2) or
 
20           (3), may instruct the bank to pay the balance of the
 
21           deposit account to or for the benefit of the secured
 
22           party.
 
23      (b)  If necessary to enable a secured party to exercise
 

 
Page 162                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 under subsection (a)(3), the right of a debtor to enforce a
 
 2 mortgage nonjudicially, the secured party may record in the
 
 3 office in which a record of the mortgage is recorded:
 
 4      (1)  A copy of the security agreement that creates or
 
 5           provides for a security interest in the obligation
 
 6           secured by the mortgage; and
 
 7      (2)  The secured party's sworn affidavit in recordable form
 
 8           stating that:
 
 9           (A)  A default has occurred; and
 
10           (B)  The secured party is entitled to enforce the
 
11                mortgage nonjudicially.
 
12      (c)  A secured party shall proceed in a commercially
 
13 reasonable manner if the secured party:
 
14      (1)  Undertakes to collect from or enforce an obligation of
 
15           an account debtor or other person obligated on
 
16           collateral; and
 
17      (2)  Is entitled to charge back uncollected collateral or
 
18           otherwise to full or limited recourse against the
 
19           debtor or a secondary obligor.
 
20      (d)  A secured party may deduct from the collections made
 
21 pursuant to subsection (c) reasonable expenses of collection and
 
22 enforcement, including reasonable attorney's fees and legal
 
23 expenses incurred by the secured party.
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (e)  This section does not determine whether an account
 
 2 debtor, bank, or other person obligated on collateral owes a duty
 
 3 to a secured party.
 
 4      490:9-608  Application of proceeds of collection or
 
 5 enforcement; liability for deficiency and right to surplus.(a)
 
 6 If a security interest or agricultural lien secures payment or
 
 7 performance of an obligation, the following rules apply:
 
 8      (1)  A secured party shall apply or pay over for application
 
 9           the cash proceeds of collection or enforcement under
 
10           this section in the following order to:
 
11           (A)  The reasonable expenses of collection and
 
12                enforcement and, to the extent provided for by
 
13                agreement and not prohibited by law, reasonable
 
14                attorney's fees and legal expenses incurred by the
 
15                secured party;
 
16           (B)  The satisfaction of obligations secured by the
 
17                security interest or agricultural lien under which
 
18                the collection or enforcement is made; and
 
19           (C)  The satisfaction of obligations secured by any
 
20                subordinate security interest in or other lien on
 
21                the collateral subject to the security interest or
 
22                agricultural lien under which the collection or
 
23                enforcement is made if the secured party receives
 

 
Page 164                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1                an authenticated demand for proceeds before
 
 2                distribution of the proceeds is completed.
 
 3      (2)  If requested by a secured party, a holder of a
 
 4           subordinate security interest or other lien shall
 
 5           furnish reasonable proof of the interest or lien within
 
 6           a reasonable time.  Unless the holder complies, the
 
 7           secured party need not comply with the holder's demand
 
 8           under paragraph (1)(C).
 
 9      (3)  A secured party need not apply or pay over for
 
10           application noncash proceeds of collection and
 
11           enforcement under this section unless the failure to do
 
12           so would be commercially unreasonable.  A secured party
 
13           that applies or pays over for application noncash
 
14           proceeds shall do so in a commercially reasonable
 
15           manner.
 
16      (4)  A secured party shall account to and pay a debtor for
 
17           any surplus, and the obligor is liable for any
 
18           deficiency.
 
19      (b)  If the underlying transaction is a sale of accounts,
 
20 chattel paper, payment intangibles, or promissory notes, the
 
21 debtor is not entitled to any surplus, and the obligor is not
 
22 liable for any deficiency.
 
23      490:9-609  Secured party's right to take possession after
 

 


 

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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 default.(a)  After default, a secured party:
 
 2      (1)  May take possession of the collateral; and
 
 3      (2)  Without removal, may render equipment unusable and
 
 4           dispose of collateral on a debtor's premises under
 
 5           section 490:9-610.
 
 6      (b)  A secured party may proceed under subsection (a):
 
 7      (1)  Pursuant to judicial process; or
 
 8      (2)  Without judicial process, if it proceeds without breach
 
 9           of the peace.
 
10      (c)  If so agreed, and in any event after default, a secured
 
11 party may require the debtor to assemble the collateral and make
 
12 it available to the secured party at a place to be designated by
 
13 the secured party which is reasonably convenient to both parties.
 
14      490:9-610  Disposition of collateral after default.(a)
 
15 After default, a secured party may sell, lease, license, or
 
16 otherwise dispose of any or all of the collateral in its present
 
17 condition or following any commercially reasonable preparation or
 
18 processing.
 
19      (b)  Every aspect of a disposition of collateral, including
 
20 the method, manner, time, place, and other terms, must be
 
21 commercially reasonable.  If commercially reasonable, a secured
 
22 party may dispose of collateral by public or private proceedings,
 
23 by one or more contracts, as a unit or in parcels, and at any
 

 
Page 166                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 time and place and on any terms.
 
 2      (c)  A secured party may purchase collateral:
 
 3      (1)  At a public disposition; or
 
 4      (2)  At a private disposition only if the collateral is of a
 
 5           kind that is customarily sold on a recognized market or
 
 6           the subject of widely distributed standard price
 
 7           quotations.
 
 8      (d)  A contract for sale, lease, license, or other
 
 9 disposition includes the warranties relating to title,
 
10 possession, quiet enjoyment, and the like which by operation of
 
11 law accompany a voluntary disposition of property of the kind
 
12 subject to the contract.
 
13      (e)  A secured party may disclaim or modify warranties under
 
14 subsection (d):
 
15      (1)  In a manner that would be effective to disclaim or
 
16           modify the warranties in a voluntary disposition of
 
17           property of the kind subject to the contract of
 
18           disposition; or
 
19      (2)  By communicating to the purchaser a record evidencing
 
20           the contract for disposition and including an express
 
21           disclaimer or modification of the warranties.
 
22      (f)  A record is sufficient to disclaim warranties under
 
23 subsection (e) if it indicates "There is no warranty relating to
 

 
Page 167                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 title, possession, quiet enjoyment, or the like in this
 
 2 disposition" or uses words of similar import.
 
 3      490:9-611  Notification before disposition of collateral.
 
 4 (a)  In this section, "notification date" means the earlier of
 
 5 the date on which:
 
 6      (1)  A secured party sends to the debtor and any secondary
 
 7           obligor an authenticated notification of disposition;
 
 8           or
 
 9      (2)  The debtor and any secondary obligor waive the right to
 
10           notification.
 
11      (b)  Except as otherwise provided in subsection (d), a
 
12 secured party that disposes of collateral under section 490:9-610
 
13 shall send to the persons specified in subsection (c) a
 
14 reasonable authenticated notification of disposition.
 
15      (c)  To comply with subsection (b), the secured party shall
 
16 send an authenticated notification of disposition to:
 
17      (1)  The debtor;
 
18      (2)  Any secondary obligor; and
 
19      (3)  If the collateral is other than consumer goods:
 
20           (A)  Any other person from which the secured party has
 
21                received, before the notification date, an
 
22                authenticated notification of a claim of an
 
23                interest in the collateral;
 

 
Page 168                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           (B)  Any other secured party or lienholder that, ten
 
 2                days before the notification date, held a security
 
 3                interest in or other lien on the collateral
 
 4                perfected by the filing of a financing statement
 
 5                that:
 
 6                (i)  Identified the collateral;
 
 7               (ii)  Was indexed under the debtor's name as of
 
 8                     that date; and
 
 9              (iii)  Was filed in the office in which to file a
 
10                     financing statement against the debtor
 
11                     covering the collateral as of that date; and
 
12           (C)  Any other secured party that, ten days before the
 
13                notification date, held a security interest in the
 
14                collateral perfected by compliance with a statute,
 
15                regulation, or treaty described in section
 
16                490:9-311(a).
 
17      (d)  Subsection (b) does not apply if the collateral is
 
18 perishable or threatens to decline speedily in value or is of a
 
19 type customarily sold on a recognized market.
 
20      (e)  A secured party complies with the requirement for
 
21 notification prescribed by subsection (c)(3)(B) if:
 
22      (1)  Not later than twenty days or earlier than thirty days
 
23           before the notification date, the secured party
 

 
Page 169                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           requests, in a commercially reasonable manner,
 
 2           information concerning financing statements indexed
 
 3           under the debtor's name in the office indicated in
 
 4           subsection (c)(3)(B); and
 
 5      (2)  Before the notification date, the secured party:
 
 6           (A)  Did not receive a response to the request for
 
 7                information; or
 
 8           (B)  Received a response to the request for information
 
 9                and sent an authenticated notification of
 
10                disposition to each secured party named in that
 
11                response whose financing statement covered the
 
12                collateral.
 
13      490:9-612  Timeliness of notification before disposition of
 
14 collateral.(a)  Except as otherwise provided in subsection (b),
 
15 whether a notification is sent within a reasonable time is a
 
16 question of fact.
 
17      (b)  In a transaction other than a consumer transaction, a
 
18 notification of disposition sent after default and ten days or
 
19 more before the earliest time of disposition set forth in the
 
20 notification is sent within a reasonable time before the
 
21 disposition.
 
22      490:9-613  Contents and form of notification before
 
23 disposition of collateral: general.  Except in a consumer-goods
 

 
Page 170                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 transaction, the following rules apply:
 
 2      (1)  The contents of a notification of disposition are
 
 3           sufficient if the notification:
 
 4           (A)  Describes the debtor and the secured party;
 
 5           (B)  Describes the collateral that is the subject of
 
 6                the intended disposition;
 
 7           (C)  States the method of intended disposition;
 
 8           (D)  States that the debtor is entitled to an
 
 9                accounting of the unpaid indebtedness and states
 
10                the charge, if any, for an accounting; and
 
11           (E)  States the time and place of a public sale or the
 
12                time after which any other disposition is to be
 
13                made.
 
14      (2)  Whether the contents of a notification that lacks any
 
15           of the information specified in paragraph (1) are
 
16           nevertheless sufficient is a question of fact.
 
17      (3)  The contents of a notification providing substantially
 
18           the information specified in paragraph (1) are
 
19           sufficient, even if the notification includes:
 
20           (A)  Information not specified by that paragraph; or
 
21           (B)  Minor errors that are not seriously misleading.
 
22      (4)  A particular phrasing of the notification is not
 
23           required.
 

 
Page 171                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (5)  The following form of notification and the form
 
 2           appearing in section 490:9-614(3), when completed, each
 
 3           provides sufficient information:
 
 4             NOTIFICATION OF DISPOSITION OF COLLATERAL
 
 5      To: (Name of debtor, obligor, or other person to which the
 
 6 notification is sent)
 
 7      From:  (Name, address, and telephone number of secured
 
 8 party)
 
 9      Name of Debtor(s):  (Include only if debtor(s) are not an
 
10 addressee)
 
11 (For a public disposition:)
 
12      We will sell (or lease or license, as applicable) the
 
13 (describe collateral) (to the highest qualified bidder) in public
 
14 as follows:
 
15      Day and Date: _________________________
 
16      Time:         _________________________
 
17      Place:        _________________________
 
18      (For a private disposition:)
 
19      We will sell (or lease or license, as applicable) the
 
20 (describe collateral) privately sometime after (day and date).
 
21      You are entitled to an accounting of the unpaid indebtedness
 
22 secured by the property that we intend to sell (or lease or
 
23 license, as applicable) (for a charge of $      ).   You may
 

 
Page 172                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 request an accounting by calling us at (telephone number)
 
 2                           (End of Form)
 
 3      490:9-614  Contents and form of notification before
 
 4 disposition of collateral:  consumer-goods transaction.  In a
 
 5 consumer-goods transaction, the following rules apply:
 
 6      (1)  A notification of disposition must provide the
 
 7           following information:
 
 8           (A)  The information specified in section 490:9-613(1);
 
 9           (B)  A description of any liability for a deficiency of
 
10                the person to which the notification is sent;
 
11           (C)  A telephone number from which the amount that must
 
12                be paid to the secured party to redeem the
 
13                collateral under section 490:9-623 is available;
 
14                and
 
15           (D)  A telephone number or mailing address from which
 
16                additional information concerning the disposition
 
17                and the obligation secured is available.
 
18      (2)  A particular phrasing of the notification is not
 
19           required.
 
20      (3)  The following form of notification, when completed,
 
21           provides sufficient information:
 
22      (Name and address of secured party)
 
23      (Date)
 

 
Page 173                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1                NOTICE OF OUR PLAN TO SELL PROPERTY
 
 2      (Name and address of any obligor who is also a debtor)
 
 3 Subject:  (Identification of Transaction)                  
 
 4      We have your (describe collateral), because you broke
 
 5 promises in our agreement.
 
 6 
 
 7 (For a public disposition:)
 
 8 We will sell (describe collateral) at public sale.  A sale could
 
 9 include a lease or license.  The sale will be held as follows:
 
10      Date:   _________________________
 
11      Time:   _________________________
 
12      Place:  _________________________
 
13 You may attend the sale and bring bidders if you want.
 
14 
 
15 (For a private disposition:)
 
16 We will sell (describe collateral) at private sale sometime after
 
17 (date).  A sale could include a lease or license.
 
18 
 
19 The money that we get from the sale (after paying our costs) will
 
20 reduce the amount you owe.  If we get less money than you owe,
 
21 you (will or will not, as applicable) still owe us the
 
22 difference.  If we get more money than you owe, you will get the
 
23 extra money, unless we must pay it to someone else.  You can get
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 the property back at any time before we sell it by paying us the
 
 2 full amount you owe (not just the past due payments), including
 
 3 our expenses.  To learn the exact amount you must pay, call us at
 
 4 (telephone number).
 
 5 
 
 6 If you want us to explain to you in writing how we have figured
 
 7 the amount that you owe us, you may call us at (telephone number)
 
 8 (or write us at (secured party's address)) and request a written
 
 9 explanation.  (We will charge you $       for the explanation if
 
10 we sent you another written explanation of the amount you owe us
 
11 within the last six months.)
 
12 
 
13 If you need more information about the sale call us at (telephone
 
14 number) (or write us at (secured party's address)).
 
15 
 
16 We are sending this notice to the following other people who have
 
17 an interest in (describe collateral) or who owe money under your
 
18 agreement:
 
19      (Names of all other debtors and obligors, if any)
 
20                           [End of Form]
 
21      (4)  A notification in the form of paragraph (3) is
 
22           sufficient, even if additional information appears at
 
23           the end of the form.
 

 
Page 175                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (5)  A notification in the form of paragraph (3) is
 
 2           sufficient, even if it includes errors in information
 
 3           not required by paragraph (1), unless the error is
 
 4           misleading with respect to rights arising under this
 
 5           article.
 
 6      (6)  If a notification under this section is not in the form
 
 7           of paragraph (3), law other than this article
 
 8           determines the effect of including information not
 
 9           required by paragraph (1).
 
10      490:9-615  Application of proceeds of disposition;
 
11 liability for deficiency and right to surplus.(a)  A secured
 
12 party shall apply or pay over for application the cash proceeds
 
13 of disposition in the following order to:
 
14      (1)  The reasonable expenses of retaking, holding, preparing
 
15           for disposition, processing, and disposing, and, to the
 
16           extent provided for by agreement and not prohibited by
 
17           law, reasonable attorney's fees and legal expenses
 
18           incurred by the secured party;
 
19      (2)  The satisfaction of obligations secured by the security
 
20           interest or agricultural lien under which the
 
21           disposition is made;
 
22      (3)  The satisfaction of obligations secured by any
 
23           subordinate security interest in or other subordinate
 

 
Page 176                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           lien on the collateral if:
 
 2           (A)  The secured party receives from the holder of the
 
 3                subordinate security interest or other lien an
 
 4                authenticated demand for proceeds before
 
 5                distribution of the proceeds is completed; and
 
 6           (B)  In a case in which a consignor has an interest in
 
 7                the collateral, the subordinate security interest
 
 8                or other lien is senior to the interest of the
 
 9                consignor; and
 
10      (4)  A secured party that is a consignor of the collateral
 
11           if the secured party receives from the consignor an
 
12           authenticated demand for proceeds before distribution
 
13           of the proceeds is completed.
 
14      (b)  If requested by a secured party, a holder of a
 
15 subordinate security interest or other lien shall furnish
 
16 reasonable proof of the interest or lien within a reasonable
 
17 time.  Unless the holder does so, the secured party need not
 
18 comply with the holder's demand under subsection (a)(3).
 
19      (c)  A secured party need not apply or pay over for
 
20 application noncash proceeds of disposition under this section
 
21 unless the failure to do so would be commercially unreasonable. A
 
22 secured party that applies or pays over for application noncash
 
23 proceeds shall do so in a commercially reasonable manner.
 

 
Page 177                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (d)  If the security interest under which a disposition is
 
 2 made secures payment or performance of an obligation, after
 
 3 making the payments and applications required by subsection (a)
 
 4 and permitted by subsection (c):
 
 5      (1)  Unless subsection (a)(4) requires the secured party to
 
 6           apply or pay over cash proceeds to a consignor, the
 
 7           secured party shall account to and pay a debtor for any
 
 8           surplus; and
 
 9      (2)  The obligor is liable for any deficiency.
 
10      (e)  If the underlying transaction is a sale of accounts,
 
11 chattel paper, payment intangibles, or promissory notes:
 
12      (1)  The debtor is not entitled to any surplus; and
 
13      (2)  The obligor is not liable for any deficiency.
 
14      (f)  The surplus or deficiency following a disposition is
 
15 calculated based on the amount of proceeds that would have been
 
16 realized in a disposition complying with this part to a
 
17 transferee other than the secured party, a person related to the
 
18 secured party, or a secondary obligor if:
 
19      (1)  The transferee in the disposition is the secured party,
 
20           a person related to the secured party, or a secondary
 
21           obligor; and
 
22      (2)  The amount of proceeds of the disposition is
 
23           significantly below the range of proceeds that a
 

 
Page 178                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           complying disposition to a person other than the
 
 2           secured party, a person related to the secured party,
 
 3           or a secondary obligor would have brought.
 
 4      (g)  A secured party that receives cash proceeds of a
 
 5 disposition in good faith and without knowledge that the receipt
 
 6 violates the rights of the holder of a security interest or other
 
 7 lien that is not subordinate to the security interest or
 
 8 agricultural lien under which the disposition is made:
 
 9      (1)  Takes the cash proceeds free of the security interest
 
10           or other lien;
 
11      (2)  Is not obligated to apply the proceeds of the
 
12           disposition to the satisfaction of obligations secured
 
13           by the security interest or other lien; and
 
14      (3)  Is not obligated to account to or pay the holder of the
 
15           security interest or other lien for any surplus.
 
16      490:9-616  Explanation of calculation of surplus or
 
17 deficiency.(a)  In this section:
 
18      (1)  "Explanation" means a writing that:
 
19           (A)  States the amount of the surplus or deficiency;
 
20           (B)  Provides an explanation in accordance with
 
21                subsection (c) of how the secured party calculated
 
22                the surplus or deficiency;
 
23           (C)  States, if applicable, that future debits,
 

 
Page 179                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1                credits, charges, including additional credit
 
 2                service charges or interest, rebates, and expenses
 
 3                may affect the amount of the surplus or
 
 4                deficiency; and
 
 5           (D)  Provides a telephone number or mailing address
 
 6                from which additional information concerning the
 
 7                transaction is available.
 
 8      (2)  "Request" means a record:
 
 9           (A)  Authenticated by a debtor or consumer obligor;
 
10           (B)  Requesting that the recipient provide an
 
11                explanation; and
 
12           (C)  Sent after disposition of the collateral under
 
13                section 490:9-610.
 
14      (b)  In a consumer-goods transaction in which the debtor is
 
15 entitled to a surplus or a consumer obligor is liable for a
 
16 deficiency under section 490:9-615, the secured party shall:
 
17      (1)  Send an explanation to the debtor or consumer obligor,
 
18           as applicable, after the disposition and:
 
19           (A)  Before or when the secured party accounts to the
 
20                debtor and pays any surplus or first makes written
 
21                demand on the consumer obligor after the
 
22                disposition for payment of the deficiency; and
 
23           (B)  Within fourteen days after receipt of a request;
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1                or
 
 2      (2)  In the case of a consumer obligor who is liable for a
 
 3           deficiency, within fourteen days after receipt of a
 
 4           request, send to the consumer obligor a record waiving
 
 5           the secured party's right to a deficiency.
 
 6      (c)  To comply with subsection (a)(1)(B), a writing must
 
 7 provide the following information in the following order:
 
 8      (1)  The aggregate amount of obligations secured by the
 
 9           security interest under which the disposition was made,
 
10           and, if the amount reflects a rebate of unearned
 
11           interest or credit service charge, an indication of
 
12           that fact, calculated as of a specified date:
 
13           (A)  If the secured party takes or receives possession
 
14                of the collateral after default, not more than
 
15                thirty-five days before the secured party takes or
 
16                receives possession; or
 
17           (B)  If the secured party takes or receives possession
 
18                of the collateral before default or does not take
 
19                possession of the collateral, not more than
 
20                thirty-five days before the disposition;
 
21      (2)  The amount of proceeds of the disposition;
 
22      (3)  The aggregate amount of the obligations after deducting
 
23           the amount of proceeds;
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (4)  The amount, in the aggregate or by type, and types of
 
 2           expenses, including expenses of retaking, holding,
 
 3           preparing for disposition, processing, and disposing of
 
 4           the collateral, and attorney's fees secured by the
 
 5           collateral which are known to the secured party and
 
 6           relate to the current disposition;
 
 7      (5)  The amount, in the aggregate or by type, and types of
 
 8           credits, including rebates of interest or credit
 
 9           service charges, to which the obligor is known to be
 
10           entitled and which are not reflected in the amount in
 
11           paragraph (1); and
 
12      (6)  The amount of the surplus or deficiency.
 
13      (d)  A particular phrasing of the explanation is not
 
14 required.  An explanation complying substantially with the
 
15 requirements of subsection (a) is sufficient, even if it includes
 
16 minor errors that are not seriously misleading.
 
17      (e)  A debtor or consumer obligor is entitled without charge
 
18 to one response to a request under this section during any six-
 
19 month period in which the secured party did not send to the
 
20 debtor or consumer obligor an explanation pursuant to subsection
 
21 (b)(1).  The secured party may require payment of a charge not
 
22 exceeding $25 for each additional response.
 
23      490:9-617  Rights of transferee of collateral.(a)  A
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 secured party's disposition of collateral after default:
 
 2      (1)  Transfers to a transferee for value all of the debtor's
 
 3           rights in the collateral;
 
 4      (2)  Discharges the security interest under which the
 
 5           disposition is made; and
 
 6      (3)  Discharges any subordinate security interest or other
 
 7           subordinate lien.
 
 8      (b)  A transferee that acts in good faith takes free of the
 
 9 rights and interests described in subsection (a), even if the
 
10 secured party fails to comply with this article or the
 
11 requirements of any judicial proceeding.
 
12      (c)  If a transferee does not take free of the rights and
 
13 interests described in subsection (a), the transferee takes the
 
14 collateral subject to:
 
15      (1)  The debtor's rights in the collateral;
 
16      (2)  The security interest or agricultural lien under which
 
17           the disposition is made; and
 
18      (3)  Any other security interest or other lien.
 
19      490:9-618  Rights and duties of certain secondary obligors.
 
20 (a)  A secondary obligor acquires the rights and becomes
 
21 obligated to perform the duties of the secured party after the
 
22 secondary obligor:
 
23      (1)  Receives an assignment of a secured obligation from the
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           secured party;
 
 2      (2)  Receives a transfer of collateral from the secured
 
 3           party and agrees to accept the rights and assume the
 
 4           duties of the secured party; or
 
 5      (3)  Is subrogated to the rights of a secured party with
 
 6           respect to collateral.
 
 7      (b)  An assignment, transfer, or subrogation described in
 
 8 subsection (a):
 
 9      (1)  Is not a disposition of collateral under section
 
10           490:9-610; and
 
11      (2)  Relieves the secured party of further duties under this
 
12           article.
 
13      490:9-619  Transfer of record or legal title.(a)  In this
 
14 section, "transfer statement" means a record authenticated by a
 
15 secured party stating:
 
16      (1)  That the debtor has defaulted in connection with an
 
17           obligation secured by specified collateral;
 
18      (2)  That the secured party has exercised its post-default
 
19           remedies with respect to the collateral;
 
20      (3)  That, by reason of the exercise, a transferee has
 
21           acquired the rights of the debtor in the collateral;
 
22           and
 
23      (4)  The name and mailing address of the secured party,
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           debtor, and transferee.
 
 2      (b)  A transfer statement entitles the transferee to the
 
 3 transfer of record of all rights of the debtor in the collateral
 
 4 specified in the statement in any official filing, recording,
 
 5 registration, or certificate-of-title system covering the
 
 6 collateral.  If a transfer statement is presented with the
 
 7 applicable fee and request form to the official or office
 
 8 responsible for maintaining the system, the official or office
 
 9 shall:
 
10      (1)  Accept the transfer statement;
 
11      (2)  Promptly amend its records to reflect the transfer; and
 
12      (3)  If applicable, issue a new appropriate certificate of
 
13           title in the name of the transferee.
 
14      (c)  A transfer of the record or legal title to collateral
 
15 to a secured party under subsection (b) or otherwise is not of
 
16 itself a disposition of collateral under this article and does
 
17 not of itself relieve the secured party of its duties under this
 
18 article.
 
19      490:9-620  Acceptance of collateral in full or partial
 
20 satisfaction of obligation; compulsory disposition of collateral.
 
21 (a)  Except as otherwise provided in subsection (g), a secured
 
22 party may accept collateral in full or partial satisfaction of
 
23 the obligation it secures only if:
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (1)  The debtor consents to the acceptance under subsection
 
 2           (c);
 
 3      (2)  The secured party does not receive, within the time set
 
 4           forth in subsection (d), a notification of objection to
 
 5           the proposal authenticated by:
 
 6           (A)  A person to which the secured party was required
 
 7                to send a proposal under section 490:9-621; or
 
 8           (B)  Any other person, other than the debtor, holding
 
 9                an interest in the collateral subordinate to the
 
10                security interest that is the subject of the
 
11                proposal;
 
12      (3)  If the collateral is consumer goods, the collateral is
 
13           not in the possession of the debtor when the debtor
 
14           consents to the acceptance; and
 
15      (4)  Subsection (e) does not require the secured party to
 
16           dispose of the collateral or the debtor waives the
 
17           requirement pursuant to section 490:9-624.
 
18      (b)  A purported or apparent acceptance of collateral under
 
19 this section is ineffective unless:
 
20      (1)  The secured party consents to the acceptance in an
 
21           authenticated record or sends a proposal to the debtor;
 
22           and
 
23      (2)  The conditions of subsection (a) are met.
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (c)  For purposes of this section:
 
 2      (1)  A debtor consents to an acceptance of collateral in
 
 3           partial satisfaction of the obligation it secures only
 
 4           if the debtor agrees to the terms of the acceptance in
 
 5           a record authenticated after default; and
 
 6      (2)  A debtor consents to an acceptance of collateral in
 
 7           full satisfaction of the obligation it secures only if
 
 8           the debtor agrees to the terms of the acceptance in a
 
 9           record authenticated after default or the secured
 
10           party:
 
11           (A)  Sends to the debtor after default a proposal that
 
12                is unconditional or subject only to a condition
 
13                that collateral not in the possession of the
 
14                secured party be preserved or maintained;
 
15           (B)  In the proposal, proposes to accept collateral in
 
16                full satisfaction of the obligation it secures;
 
17                and
 
18           (C)  Does not receive a notification of objection
 
19                authenticated by the debtor within twenty days
 
20                after the proposal is sent.
 
21      (d)  To be effective under subsection (a)(2), a notification
 
22 of objection must be received by the secured party:
 
23      (1)  In the case of a person to which the proposal was sent
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           pursuant to section 490:9-621, within twenty days after
 
 2           notification was sent to that person; and
 
 3      (2)  In other cases:
 
 4           (A)  Within twenty days after the last notification was
 
 5                sent pursuant to section 490:9-621; or
 
 6           (B)  If a notification was not sent, before the debtor
 
 7                consents to the acceptance under subsection (c).
 
 8      (e)  A secured party that has taken possession of collateral
 
 9 shall dispose of the collateral pursuant to section 490:9-610
 
10 within the time specified in subsection (f) if:
 
11      (1)  Sixty per cent of the cash price has been paid in the
 
12           case of a purchase-money security interest in consumer
 
13           goods; or
 
14      (2)  Sixty per cent of the principal amount of the
 
15           obligation secured has been paid in the case of a non-
 
16           purchase-money security interest in consumer goods.
 
17      (f)  To comply with subsection (e), the secured party shall
 
18 dispose of the collateral:
 
19      (1)  Within ninety days after taking possession; or
 
20      (2)  Within any longer period to which the debtor and all
 
21           secondary obligors have agreed in an agreement to that
 
22           effect entered into and authenticated after default.
 
23      (g)  In a consumer transaction, a secured party may not
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 accept collateral in partial satisfaction of the obligation it
 
 2 secures.
 
 3      490:9-621  Notification of proposal to accept collateral.
 
 4 (a)  A secured party that desires to accept collateral in full or
 
 5 partial satisfaction of the obligation it secures shall send its
 
 6 proposal to:
 
 7      (1)  Any person from which the secured party has received,
 
 8           before the debtor consented to the acceptance, an
 
 9           authenticated notification of a claim of an interest in
 
10           the collateral;
 
11      (2)  Any other secured party or lienholder that, ten days
 
12           before the debtor consented to the acceptance, held a
 
13           security interest in or other lien on the collateral
 
14           perfected by the filing of a financing statement that:
 
15           (A)  Identified the collateral;
 
16           (B)  Was indexed under the debtor's name as of that
 
17                date; and
 
18           (C)  Was filed in the office or offices in which to
 
19                file a financing statement against the debtor
 
20                covering the collateral as of that date; and
 
21      (3)  Any other secured party that, ten days before the
 
22           debtor consented to the acceptance, held a security
 
23           interest in the collateral perfected by compliance with
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           a statute, regulation, or treaty described in section
 
 2           490:9-311(a).
 
 3      (b)  A secured party that desires to accept collateral in
 
 4 partial satisfaction of the obligation it secures shall send its
 
 5 proposal to any secondary obligor in addition to the persons
 
 6 described in subsection (a).
 
 7      490:9-622  Effect of acceptance of collateral.(a)  A
 
 8 secured party's acceptance of collateral in full or partial
 
 9 satisfaction of the obligation it secures:
 
10      (1)  Discharges the obligation to the extent consented to by
 
11           the debtor;
 
12      (2)  Transfers to the secured party all of a debtor's rights
 
13           in the collateral;
 
14      (3)  Discharges the security interest or agricultural lien
 
15           that is the subject of the debtor's consent and any
 
16           subordinate security interest or other subordinate
 
17           lien; and
 
18      (4)  Terminates any other subordinate interest.
 
19      (b)  A subordinate interest is discharged or terminated
 
20 under subsection (a), even if the secured party fails to comply
 
21 with this article.
 
22      490:9-623  Right to redeem collateral.(a)  A debtor, any
 
23 secondary obligor, or any other secured party or lienholder may
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 redeem collateral.
 
 2      (b)  To redeem collateral, a person shall tender:
 
 3      (1)  Fulfillment of all obligations secured by the
 
 4           collateral; and
 
 5      (2)  The reasonable expenses and attorney's fees described
 
 6           in section 490:9-615(a)(1).
 
 7      (c)  A redemption may occur at any time before a secured
 
 8 party:
 
 9      (1)  Has collected collateral under section 490:9-607;
 
10      (2)  Has disposed of collateral or entered into a contract
 
11           for its disposition under section 490:9-610; or
 
12      (3)  Has accepted collateral in full or partial satisfaction
 
13           of the obligation it secures under section 490:9-622.
 
14      490:9-624  Waiver.(a)  A debtor or secondary obligor may
 
15 waive the right to notification of disposition of collateral
 
16 under section 490:9-611 only by an agreement to that effect
 
17 entered into and authenticated after default.
 
18      (b)  A debtor may waive the right to require disposition of
 
19 collateral under section 490:9-620(e) only by an agreement to
 
20 that effect entered into and authenticated after default.
 
21      (c)  Except in a consumer-goods transaction, a debtor or
 
22 secondary obligor may waive the right to redeem collateral under
 
23 section 490:9-623 only by an agreement to that effect entered
 

 
Page 191                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 into and authenticated after default.
 
 2              SUBPART 2.  NONCOMPLIANCE WITH ARTICLE
 
 3      490:9-625  Remedies for secured party's failure to comply
 
 4 with article.(a)  If it is established that a secured party is
 
 5 not proceeding in accordance with this article, a court may order
 
 6 or restrain collection, enforcement, or disposition of collateral
 
 7 on appropriate terms and conditions.
 
 8      (b)  Subject to subsections (c), (d), and (f), a person is
 
 9 liable for damages in the amount of any loss caused by a failure
 
10 to comply with this article.  Loss caused by a failure to comply
 
11 with a request under section 490:9-210 may include loss resulting
 
12 from the debtor's inability to obtain, or increased costs of,
 
13 alternative financing.
 
14      (c)  Except as otherwise provided in section 490:9-628:
 
15      (1)  A person that, at the time of the failure, was a
 
16           debtor, was an obligor, or held a security interest in
 
17           or other lien on the collateral may recover damages
 
18           under subsection (b) for its loss; and
 
19      (2)  If the collateral is consumer goods, a person that was
 
20           a debtor or a secondary obligor at the time a secured
 
21           party failed to comply with this part may recover for
 
22           that failure in any event an amount not less than the
 
23           credit service charge plus ten per cent of the
 

 
Page 192                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           principal amount of the obligation or the time-price
 
 2           differential plus ten per cent of the cash price.
 
 3      (d)  A debtor whose deficiency is eliminated under section
 
 4 490:9-626 may recover damages for the loss of any surplus.
 
 5 However, a debtor or secondary obligor whose deficiency is
 
 6 eliminated or reduced under section 490:9-626 may not otherwise
 
 7 recover under subsection (b) for noncompliance with the
 
 8 provisions of this part relating to collection, enforcement,
 
 9 disposition, or acceptance.
 
10      (e)  In addition to any damages recoverable under subsection
 
11 (b), the debtor, consumer obligor, or person named as a debtor in
 
12 a filed record, as applicable, may recover $500 in each case from
 
13 a person that:
 
14      (1)  Fails to comply with section 490:9-208;
 
15      (2)  Fails to comply with section 490:9-209;
 
16      (3)  Files a record that the person is not entitled to file
 
17           under section 490:9-509(a);
 
18      (4)  Fails to cause the secured party of record to file or
 
19           send a termination statement as required by section
 
20           490:9-513(a) or (c);
 
21      (5)  Fails to comply with section 490:9-616(b)(1) and whose
 
22           failure is part of a pattern, or consistent with a
 
23           practice, of noncompliance; or
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (6)  Fails to comply with section 490:9-616(b)(2).
 
 2      (f)  A debtor or consumer obligor may recover damages under
 
 3 subsection (b) and, in addition, $500 in each case from a person
 
 4 that, without reasonable cause, fails to comply with a request
 
 5 under section 490:9-210.  A recipient of a request under section
 
 6 490:9-210 which never claimed an interest in the collateral or
 
 7 obligations that are the subject of a request under that section
 
 8 has a reasonable excuse for failure to comply with the request
 
 9 within the meaning of this subsection.
 
10      (g)  If a secured party fails to comply with a request
 
11 regarding a list of collateral or a statement of account under
 
12 section 490:9-210, the secured party may claim a security
 
13 interest only as shown in the statement included in the request
 
14 as against a person that is reasonably misled by the failure.
 
15      490:9-626  Action in which deficiency or surplus is in
 
16 issue.(a)  In an action arising from a transaction, other than
 
17 a consumer transaction, in which the amount of a deficiency or
 
18 surplus is in issue, the following rules apply:
 
19      (1)  A secured party need not prove compliance with the
 
20           provisions of this part relating to collection,
 
21           enforcement, disposition, or acceptance unless the
 
22           debtor or a secondary obligor places the secured
 
23           party's compliance in issue.
 

 
Page 194                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (2)  If the secured party's compliance is placed in issue,
 
 2           the secured party has the burden of establishing that
 
 3           the collection, enforcement, disposition, or acceptance
 
 4           was conducted in accordance with this part.
 
 5      (3)  Except as otherwise provided in section 490:9-628, if a
 
 6           secured party fails to prove that the collection,
 
 7           enforcement, disposition, or acceptance was conducted
 
 8           in accordance with the provisions of this part relating
 
 9           to collection, enforcement, disposition, or acceptance,
 
10           the liability of a debtor or a secondary obligor for a
 
11           deficiency is limited to an amount by which the sum of
 
12           the secured obligation, expenses, and attorney's fees
 
13           exceeds the greater of:
 
14           (A)  The proceeds of the collection, enforcement,
 
15                disposition, or acceptance; or
 
16           (B)  The amount of proceeds that would have been
 
17                realized had the noncomplying secured party
 
18                proceeded in accordance with the provisions of
 
19                this part relating to collection, enforcement,
 
20                disposition, or acceptance.
 
21      (4)  For purposes of paragraph (3)(B), the amount of
 
22           proceeds that would have been realized is equal to the
 
23           sum of the secured obligation, expenses, and attorney's
 

 
Page 195                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           fees unless the secured party proves that the amount is
 
 2           less than that sum.
 
 3      (5)  If a deficiency or surplus is calculated under section
 
 4           490:9-615(f), the debtor or obligor has the burden of
 
 5           establishing that the amount of proceeds of the
 
 6           disposition is significantly below the range of prices
 
 7           that a complying disposition to a person other than the
 
 8           secured party, a person related to the secured party,
 
 9           or a secondary obligor would have brought.
 
10      (b)  The limitation of the rules in subsection (a) to
 
11 transactions other than consumer transactions is intended to
 
12 leave to the court the determination of the proper rules in
 
13 consumer transactions.  The court may not infer from that
 
14 limitation the nature of the proper rule in consumer transactions
 
15 and may continue to apply established approaches.
 
16      490:9-627  Determination of whether conduct was
 
17 commercially reasonable.(a)  The fact that a greater amount
 
18 could have been obtained by a collection, enforcement,
 
19 disposition, or acceptance at a different time or in a different
 
20 method from that selected by the secured party is not of itself
 
21 sufficient to preclude the secured party from establishing that
 
22 the collection, enforcement, disposition, or acceptance was made
 
23 in a commercially reasonable manner.
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (b)  A disposition of collateral is made in a commercially
 
 2 reasonable manner if the disposition is made:
 
 3      (1)  In the usual manner on any recognized market;
 
 4      (2)  At the price current in any recognized market at the
 
 5           time of the disposition; or
 
 6      (3)  Otherwise in conformity with reasonable commercial
 
 7           practices among dealers in the type of property that
 
 8           was the subject of the disposition.
 
 9      (c)  A collection, enforcement, disposition, or acceptance
 
10 is commercially reasonable if it has been approved:
 
11      (1)  In a judicial proceeding;
 
12      (2)  By a bona fide creditors' committee;
 
13      (3)  By a representative of creditors; or
 
14      (4)  By an assignee for the benefit of creditors.
 
15      (d)  Approval under subsection (c) need not be obtained, and
 
16 lack of approval does not mean that the collection, enforcement,
 
17 disposition, or acceptance is not commercially reasonable.
 
18      490:9-628  Nonliability and limitation on liability of
 
19 secured party; liability of secondary obligor.(a)  Unless a
 
20 secured party knows that a person is a debtor or obligor, knows
 
21 the identity of the person, and knows how to communicate with the
 
22 person:
 
23      (1)  The secured party is not liable to the person, or to a
 

 
Page 197                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           secured party or lienholder that has filed a financing
 
 2           statement against the person, for failure to comply
 
 3           with this article; and
 
 4      (2)  The secured party's failure to comply with this article
 
 5           does not affect the liability of the person for a
 
 6           deficiency.
 
 7      (b)  A secured party is not liable because of its status as
 
 8 secured party:
 
 9      (1)  To a person that is a debtor or obligor, unless the
 
10           secured party knows:
 
11           (A)  That the person is a debtor or obligor;
 
12           (B)  The identity of the person; and
 
13           (C)  How to communicate with the person; or
 
14      (2)  To a secured party or lienholder that has filed a
 
15           financing statement against a person, unless the
 
16           secured party knows:
 
17           (A)  That the person is a debtor; and
 
18           (B)  The identity of the person.
 
19      (c)  A secured party is not liable to any person, and a
 
20 person's liability for a deficiency is not affected, because of
 
21 any act or omission arising out of the secured party's reasonable
 
22 belief that a transaction is not a consumer-goods transaction or
 
23 a consumer transaction or that goods are not consumer goods, if
 

 
Page 198                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 the secured party's belief is based on its reasonable reliance
 
 2 on:
 
 3      (1)  A debtor's representation concerning the purpose for
 
 4           which collateral was to be used, acquired, or held; or
 
 5      (2)  An obligor's representation concerning the purpose for
 
 6           which a secured obligation was incurred.
 
 7      (d)  A secured party is not liable to any person under
 
 8 section 490:9-625(c)(2) for its failure to comply with section
 
 9 490:9-616.
 
10      (e)  A secured party is not liable under section
 
11 490:9-625(c)(2) more than once with respect to any one secured
 
12 obligation.
 
13                        PART 7. TRANSITION
 
14      490:9-701  Effective date.  This article takes effect on
 
15 July 1, 2001.
 
16      490:9-702  Savings clause.  (a)  Except as otherwise
 
17 provided in this part, this article applies to a transaction or
 
18 lien within its scope, even if the transaction or lien was
 
19 entered into or created before this article takes effect.
 
20      (b)  Except as otherwise provided in subsection (c) and
 
21 sections 490:9-703 through 490:9-708:
 
22      (1)  Transactions and liens that were not governed by former
 
23           Article 9, were validly entered into or created before
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           this article takes effect, and would be subject to this
 
 2           article if they had been entered into or created after
 
 3           this article takes effect, and the rights, duties, and
 
 4           interests flowing from those transactions and liens
 
 5           remain valid after this article takes effect; and
 
 6      (2)  The transactions and liens may be terminated,
 
 7           completed, consummated, and enforced as required or
 
 8           permitted by this article or by the law that otherwise
 
 9           would apply if this article had not taken effect.
 
10      (c)  This article does not affect an action, case, or
 
11 proceeding commenced before this article takes effect.
 
12      490:9-703  Security interest perfected before effective
 
13 date.  (a)  A security interest that is enforceable immediately
 
14 before this article takes effect and would have priority over the
 
15 rights of a person that becomes a lien creditor at that time is a
 
16 perfected security interest under this article if, when this
 
17 article takes effect, the applicable requirements for
 
18 enforceability and perfection under this article are satisfied
 
19 without further action.
 
20      (b)  Except as otherwise provided in section 490:9-705, if,
 
21 immediately before this article takes effect, a security interest
 
22 is enforceable and would have priority over the rights of a
 
23 person that becomes a lien creditor at that time, but the
 

 
Page 200                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 applicable requirements for enforceability or perfection under
 
 2 this article are not satisfied when this article takes effect,
 
 3 the security interest:
 
 4      (1)  Is a perfected security interest for one year after
 
 5           this article takes effect;
 
 6      (2)  Remains enforceable thereafter only if the security
 
 7           interest becomes enforceable under section 490:9-203
 
 8           before the year expires; and
 
 9      (3)  Remains perfected thereafter only if the applicable
 
10           requirements for perfection under this article are
 
11           satisfied before the year expires.
 
12      490:9-704  Security interest unperfected before effective
 
13 date.  A security interest that is enforceable immediately before
 
14 this article takes effect but which would be subordinate to the
 
15 rights of a person that becomes a lien creditor at that time:
 
16      (1)  Remains an enforceable security interest for one year
 
17           after this article takes effect;
 
18      (2)  Remains enforceable thereafter if the security interest
 
19           becomes enforceable under section 490:9-203 when this
 
20           article takes effect or within one year thereafter; and
 
21      (3)  Becomes perfected:
 
22           (A)  Without further action, when this article takes
 
23                effect if the applicable requirements for
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1                perfection under this article are satisfied before
 
 2                or at that time; or
 
 3           (B)  When the applicable requirements for perfection
 
 4                are satisfied if the requirements are satisfied
 
 5                after that time.
 
 6      490:9-705  Effectiveness of action taken before effective
 
 7 date.(a)  If action, other than the filing of a financing
 
 8 statement, is taken before this article takes effect and the
 
 9 action would have resulted in priority of a security interest
 
10 over the rights of a person that becomes a lien creditor had the
 
11 security interest become enforceable before this article takes
 
12 effect, the action is effective to perfect a security interest
 
13 that attaches under this article within one year after this
 
14 article takes effect.  An attached security interest becomes
 
15 unperfected one year after this article takes effect unless the
 
16 security interest becomes a perfected security interest under
 
17 this article before the expiration of that period.
 
18      (b)  The filing of a financing statement before this article
 
19 takes effect is effective to perfect a security interest to the
 
20 extent the filing would satisfy the applicable requirements for
 
21 perfection under this article.
 
22      (c)  This article does not render ineffective an effective
 
23 financing statement that, before this article takes effect, is
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 filed and satisfies the applicable requirements for perfection
 
 2 under the law of the jurisdiction governing perfection as
 
 3 provided in the former section 490:9-103.  However, except as
 
 4 otherwise provided in subsections (d) and (e) and section
 
 5 490:9-706, the financing statement ceases to be effective at the
 
 6 earlier of:
 
 7      (1)  The time the financing statement would have ceased to
 
 8           be effective under the law of the jurisdiction in which
 
 9           it is filed; or
 
10      (2)  June 30, 2006.
 
11      (d)  The filing of a continuation statement after this
 
12 article takes effect does not continue the effectiveness of the
 
13 financing statement filed before this article takes effect.
 
14 However, upon the timely filing of a continuation statement after
 
15 this article takes effect and in accordance with the law of the
 
16 jurisdiction governing perfection as provided in part 3, the
 
17 effectiveness of a financing statement filed in the same office
 
18 in that jurisdiction before this article takes effect continues
 
19 for the period provided by the law of that jurisdiction.
 
20      (e)  Subsection (c)(2) applies to a financing statement
 
21 that, before this article takes effect, is filed against a
 
22 transmitting utility and satisfies the applicable requirements
 
23 for perfection under the law of the jurisdiction governing
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 perfection as provided in the former section 490:9-103 only to
 
 2 the extent that part 3 provides that the law of a jurisdiction
 
 3 other than a jurisdiction in which the financing statement is
 
 4 filed governs perfection of a security interest in collateral
 
 5 covered by the financing statement.
 
 6      (f)  A financing statement that includes a financing
 
 7 statement filed before this article takes effect and a
 
 8 continuation statement filed after this article takes effect is
 
 9 effective only to the extent that it satisfies the requirements
 
10 of part 5 for an initial financing statement.
 
11      490:9-706  When initial financing statement suffices as
 
12 continuation statement.(a)  The filing of an initial financing
 
13 statement in the office specified in section 490:9-501 continues
 
14 the effectiveness of a financing statement filed before this
 
15 article takes effect if:
 
16      (1)  The filing of an initial financing statement in that
 
17           office would be effective to perfect a security
 
18           interest under this article;
 
19      (2)  The pre-effective-date financing statement was filed in
 
20           an office in another state or another office in this
 
21           State; and
 
22      (3)  The initial financing statement satisfies subsection
 
23           (c).
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (b)  The filing of an initial financing statement under
 
 2 subsection (a) continues the effectiveness of the pre-effective-
 
 3 date financing statement:
 
 4      (1)  If the initial financing statement is filed before this
 
 5           article takes effect, for the period provided in the
 
 6           former section 490:9-403 with respect to a financing
 
 7           statement; and
 
 8      (2)  If the initial financing statement is filed after this
 
 9           article takes effect, for the period provided in
 
10           section 490:9-515 with respect to an initial financing
 
11           statement.
 
12      (c)  To be effective for purposes of subsection (a), an
 
13 initial financing statement must:
 
14      (1)  Satisfy the requirements of part 5 for an initial
 
15           financing statement;
 
16      (2)  Identify the pre-effective-date financing statement by
 
17           indicating the office in which the financing statement
 
18           was filed and providing the dates of filing and file
 
19           numbers, if any, of the financing statement and of the
 
20           most recent continuation statement filed with respect
 
21           to the financing statement; and
 
22      (3)  Indicate that the pre-effective-date financing
 
23           statement remains effective.
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1      490:9-707  Persons entitled to file initial financing
 
 2 statement or continuation statement.  A person may file an
 
 3 initial financing statement or a continuation statement under
 
 4 this part if:
 
 5      (1)  The secured party of record authorizes the filing; and
 
 6      (2)  The filing is necessary under this part:
 
 7           (A)  To continue the effectiveness of a financing
 
 8                statement filed before this article takes effect;
 
 9                or
 
10           (B)  To perfect or continue the perfection of a
 
11                security interest.
 
12      490:9-708  Priority.(a)  This article determines the
 
13 priority of conflicting claims to collateral.  However, if the
 
14 relative priorities of the claims were established before this
 
15 article takes effect, the former Article 9 determines priority.
 
16      (b)  For purposes of section 490:9-322(a), the priority of a
 
17 security interest that becomes enforceable under section
 
18 490:9-203 of this article dates from the time this article takes
 
19 effect if the security interest is perfected under this article
 
20 by the filing of a financing statement before this article takes
 
21 effect which would not have been effective to perfect the
 
22 security interest under the former Article 9.  This subsection
 
23 does not apply to conflicting security interests each of which is
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 perfected by the filing of such a financing statement." 
 
 2      SECTION 2.  Chapter 490, Hawaii Revised Statutes, is amended
 
 3 by adding a new section to article 5 to be appropriately
 
 4 designated and to read as follows:
 
 5      "490:5-118  Security interest of issuer or nominated
 
 6 person.(a)  An issuer or nominated person has a security
 
 7 interest in a document presented under a letter of credit to the
 
 8 extent that the issuer or nominated person honors or gives value
 
 9 for the presentation.
 
10      (b)  So long as and to the extent that an issuer or
 
11 nominated person has not been reimbursed or has not otherwise
 
12 recovered the value given with respect to a security interest in
 
13 a document under subsection (a), the security interest continues
 
14 and is subject to Article 9, but:
 
15      (1)  A security agreement is not necessary to make the
 
16           security interest enforceable under section
 
17           490:9-203(b)(3);
 
18      (2)  If the document is presented in a medium other than a
 
19           written or other tangible medium, the security interest
 
20           is perfected; and
 
21      (3)  If the document is presented in a written or other
 
22           tangible medium and is not a certificated security,
 
23           chattel paper, a document of title, an instrument, or a
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           letter of credit, the security interest is perfected
 
 2           and has priority over a conflicting security interest
 
 3           in the document so long as the debtor does not have
 
 4           possession of the document."
 
 5      SECTION 3.  Section 490:1-105, Hawaii Revised Statutes, is
 
 6 amended by amending subsection (2) to read as follows:
 
 7      "(2)  Where one of the following provisions of this chapter
 
 8 specifies the applicable law, that provision governs and a
 
 9 contrary agreement is effective only to the extent permitted by
 
10 the law (including the conflict of laws rules) so specified:
 
11      Rights of creditors against sold goods.  Section 490:2-402.
 
12      Applicability of the Article on Leases.  Sections 490:2A-105
 
13 and 490:2A-106.
 
14      Applicability of the Article on Bank Deposits and
 
15 Collections.  Section 490:4-102.
 
16      Governing law in the Article on Funds Transfers.  Section
 
17 490:4A-507.
 
18      Letters of Credit.  Section 490:5-116.
 
19      Applicability of the Article on Investment Securities.
 
20 Section 490:8-110.
 
21      [Perfection provisions of the Article on Secured
 
22 Transactions.  Section 490:9-103.]
 
23      Law governing the effect of perfection or nonperfection, and
 

 
Page 208                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 the priority of security interests.  Sections 490:9-301 through
 
 2 490:9-307."
 
 3      SECTION 4.  Section 490:1-201, Hawaii Revised Statutes, is
 
 4 amended as follows:
 
 5      1.  By amending the definition of "buyer in ordinary course
 
 6 of business" to read:
 
 7      "(9)  "Buyer in ordinary course of business" means a person
 
 8 [who] that buys goods in good faith [and], without knowledge that
 
 9 the sale [to him is in violation of] violates the ownership
 
10 rights [or security interest of a third party] of another peson
 
11 in the goods [buys in], and in the ordinary course from a person,
 
12 other than a pawnbroker, in the business of selling goods of that
 
13 kind [but does not include a pawnbroker.  All persons who sell
 
14 minerals or the like (including oil and gas) at wellhead or
 
15 minehead shall be deemed to be persons].  A person buys goods in
 
16 the ordinary course if the sale to the person comports with the
 
17 usual or customary practices in the kind of business in which the
 
18 seller is engaged or with the seller's own usual or customary
 
19 practices.  A person that sells oil, gas, or other minerals at
 
20 the wellhead or minehead is a person in the business of selling
 
21 goods of that kind.  ["Buying"] A buyer in ordinary course of
 
22 business may [be] buy for cash [or], by exchange of other
 
23 property, or on secured or unsecured credit, and [includes
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 receiving] may acquire goods or documents of title under a
 
 2 preexisting contract for sale [but does not include a transfer in
 
 3 bulk or as security for or in total or partial satisfaction of a
 
 4 money debt.]  Only a buyer that takes possession of the goods or
 
 5 has a right to recover the goods from the seller under Article 2
 
 6 may be a buyer in ordinary course of business.  A person that
 
 7 acquires goods in a transfer in bulk or as security for or in
 
 8 total or partial satisfaction of a money debt is not a buyer in
 
 9 ordinary course of business.
 
10      2.  By amending the definition of "purchase" to read:
 
11      "(32)  "Purchase" includes taking by sale, discount,
 
12 negotiation, mortgage, pledge, lien, security interest, issue or
 
13 reissue, gift, or any other voluntary transaction creating an
 
14 interest in property."
 
15      3.  By amending the definition of "security interest to
 
16 read:
 
17      "(37)  "Security interest" means an interest in personal
 
18 property or fixtures which secures payment or performance of an
 
19 obligation.  [The retention or reservation of title by a seller
 
20 of goods notwithstanding shipment or delivery to the buyer
 
21 (section 490:2-401) is limited in effect to a reservation of a
 
22 "security interest".] The term also includes any interest of a
 
23 consignor and a buyer of accounts [or], chattel paper [which], a
 

 
Page 210                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 payment intangible, or a promissory note in a transaction that is
 
 2 subject to Article 9.  The special property interest of a buyer
 
 3 of goods on identification of those goods to a contract for sale
 
 4 under section 490:2-401 is not a "security interest", but a buyer
 
 5 may also acquire a "security interest" by complying with Article
 
 6 9.  [Unless a consignment is intended as security, reservation of
 
 7 title thereunder is not a "security interest", but a consignment
 
 8 in any event is subject to the provisions on consignment sales
 
 9 (section 490:2-326).] Except as otherwise provided in section
 
10 490:2-505, the right of a seller or lessor of goods under article
 
11 2 or 2A to retain or acquire possession of the goods is not a
 
12 "security interest", but a seller or lessor may also acquire a
 
13 "security interest" by complying with Article 9.  The retention
 
14 or reservation of title by a seller of goods notwithstanding
 
15 shipment or delivery to the buyer (section 490:2-401) is limited
 
16 in effect to a reservation of a "security interest".
 
17      Whether a transaction creates a lease or security interest
 
18 is determined by the facts of each case; however, a transaction
 
19 creates a security interest if the consideration the lessee is to
 
20 pay the lessor for the right to possession and use of the goods
 
21 is an obligation for the term of the lease not subject to
 
22 termination by the lessee, and:
 
23      (a)  The original term of the lease is equal to or greater
 

 
Page 211                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           than the remaining economic life of the goods;
 
 2      (b)  The lessee is bound to renew the lease for the
 
 3           remaining economic life of the goods or is bound to
 
 4           become the owner of the goods;
 
 5      (c)  The lessee has an option to renew the lease for the
 
 6           remaining economic life of the goods for no additional
 
 7           consideration or nominal additional consideration upon
 
 8           compliance with the lease agreement; or
 
 9      (d)  The lessee has an option to become the owner of the
 
10           goods for no additional consideration or nominal
 
11           additional consideration upon compliance with the lease
 
12           agreement.
 
13      A transaction does not create a security interest merely
 
14 because it provides that:
 
15      (a)  The present value of the consideration the lessee is
 
16           obligated to pay the lessor for the right to possession
 
17           and use of the goods is substantially equal to or is
 
18           greater than the fair market value of the goods at the
 
19           time the lease is entered into;
 
20      (b)  The lessee assumes risk of loss of the goods, or agrees
 
21           to pay taxes, insurance, filing, recording, or
 
22           registration fees, or service or maintenance costs with
 
23           respect to the goods;
 

 
Page 212                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      (c)  The lessee has an option to renew the lease or to
 
 2           become the owner of the goods;
 
 3      (d)  The lessee has an option to renew the lease for a fixed
 
 4           rent that is equal to or greater than the reasonably
 
 5           predictable fair market rent for the use of the goods
 
 6           for the term of the renewal at the time the option is
 
 7           to be performed; or
 
 8      (e)  The lessee has an option to become the owner of the
 
 9           goods for a fixed price that is equal to or greater
 
10           than the reasonably predictable fair market value of
 
11           the goods at the time the option is to be performed.
 
12      For purposes of this subsection (37):
 
13      (x)  Additional consideration is not nominal if (i) when the
 
14           option to renew the lease is granted to the lessee the
 
15           rent is stated to be the fair market rent for the use
 
16           of the goods for the term of the renewal determined at
 
17           the time the option is to be performed, or (ii) when
 
18           the option to become the owner of the goods is granted
 
19           to the lessee the price is stated to be the fair market
 
20           value of the goods determined at the time the option is
 
21           to be performed.  Additional consideration is nominal
 
22           if it is less than the lessee's reasonably predictable
 
23           cost of performing under the lease agreement if the
 

 
Page 213                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           option is not exercised;
 
 2      (y)  "Reasonably predictable" and "remaining economic life
 
 3           of the goods" are to be determined with reference to
 
 4           the facts and circumstances at the time the transaction
 
 5           is entered into; and
 
 6      (z)  "Present value" means the amount as of a date certain
 
 7           of one or more sums payable in the future, discounted
 
 8           to the date certain.  The discount is determined by the
 
 9           interest rate specified by the parties if the rate is
 
10           not manifestly unreasonable at the time the transaction
 
11           is entered into; otherwise, the discount is determined
 
12           by a commercially reasonable rate that takes into
 
13           account the facts and circumstances of each case at the
 
14           time the transaction was entered into."
 
15      SECTION 5.  Section 490:2-103, Hawaii Revised Statutes, is
 
16 amended by amending subsection (3) to read as follows:
 
17      "(3)  The following definitions in other Articles apply to
 
18 this Article:
 
19      "Check".  Section 490:3-104.
 
20      "Consignee".  Section 490:7-102.
 
21      "Consignor".  Section 490:7-102.
 
22      "Consumer goods".  Section [490:9-109.] 490:9-102.
 
23      "Dishonor".  Section 490:3-502.
 

 
Page 214                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      "Draft".  Section 490:3-104."
 
 2      SECTION 6.  Section 490:2-210, Hawaii Revised Statutes, is
 
 3 amended to read as follows:
 
 4      "490:2-210  Delegation of performance; assignment of
 
 5 rights.(1)  A party may perform his duty through a delegate
 
 6 unless otherwise agreed or unless the other party has a
 
 7 substantial interest in having his original promisor perform or
 
 8 control the acts required by the contract.  No delegation of
 
 9 performance relieves the party delegating of any duty to perform
 
10 or any liability for breach.
 
11      (2)  Unless otherwise agreed all rights of either seller or
 
12 buyer can be assigned except where the assignment would
 
13 materially change the duty of the other party, or increase
 
14 materially the burden or risk imposed on him by his contract, or
 
15 impair materially his chance of obtaining return performance.  A
 
16 right to damages for breach of the whole contract or a right
 
17 arising out of the assignor's due performance of his entire
 
18 obligation can be assigned despite agreement otherwise.
 
19      (3)  The creation, attachment, perfection, or enforcement of
 
20 a security interest in the seller's interest under a contract is
 
21 not a transfer that materially changes the duty of or increases
 
22 materially the burden or risk imposed on the buyer or impairs
 
23 materially the buyer's chance of obtaining return performance
 

 
Page 215                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 within the purview of subsection (2) unless, and then only to the
 
 2 extent that, enforcement actually results in a delegation of
 
 3 material performance of the seller.  Even in that event, the
 
 4 creation, attachment, perfection, and enforcement of the security
 
 5 interest remain effective, but (i) the seller is liable to the
 
 6 buyer for damages caused by the delegation to the extent that the
 
 7 damages could not reasonably be prevented by the buyer, and (ii)
 
 8 a court having jurisdiction may grant other appropriate relief,
 
 9 including cancellation of the contract for sale or an injunction
 
10 against enforcement of the security interest or consummation of
 
11 the enforcement.
 
12      [(3)] (4)  Unless the circumstances indicate the contrary a
 
13 prohibition of assignment of "the contract" is to be construed as
 
14 barring only the delegation to the assignee of the assignor's
 
15 performance.
 
16      [(4)] (5)  An assignment of "the contract" or of "all my
 
17 rights under the contract" or an assignment in similar general
 
18 terms is an assignment of rights and unless the language or the
 
19 circumstances (as in an assignment for security) indicate the
 
20 contrary, it is a delegation of performance of the duties of the
 
21 assignor and its acceptance by the assignee constitutes a promise
 
22 by him to perform those duties.  This promise is enforceable by
 
23 either the assignor or the other party to the original contract.
 

 
Page 216                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      [(5)] (6)  The other party may treat any assignment which
 
 2 delegates performance as creating reasonable grounds for
 
 3 insecurity and may without prejudice to his rights against the
 
 4 assignor demand assurances from the assignee (section
 
 5 490:2-609)."
 
 6      SECTION 7.  Section 490:2-326, Hawaii Revised Statutes, is
 
 7 amended to read as follows:
 
 8      "490:2-326  Sale on approval and sale or return;
 
 9 [consignment sales and] rights of creditors.(1)  Unless
 
10 otherwise agreed, if delivered goods may be returned by the buyer
 
11 even though they conform to the contract, the transaction is
 
12      (a)  A "sale on approval" if the goods are delivered
 
13           primarily for use; and
 
14      (b)  A "sale or return" if the goods are delivered primarily
 
15           for resale.
 
16      (2)  [Except as provided in subsection (3), goods] Goods
 
17 held on approval are not subject to the claims of the buyer's
 
18 creditors until acceptance; goods held on sale or return are
 
19 subject to such claims while in the buyer's possession.
 
20      [(3)  Where goods are delivered to a person for sale and
 
21 such person maintains a place of business at which he deals in
 
22 goods of the kind involved, under a name other than the name of
 
23 the person making delivery, then with respect to claims of
 

 
Page 217                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 creditors of the person conducting the business the goods are
 
 2 deemed to be on sale or return.  The provisions of this
 
 3 subsection are applicable even though an agreement purports to
 
 4 reserve title to the person making delivery until payment or
 
 5 resale or uses such words as "on consignment" or "on memorandum".
 
 6 However, this subsection is not applicable if the person making
 
 7 delivery
 
 8      (a)  Complies with an applicable law providing for a
 
 9           consignor's interest or the like to be evidenced by a
 
10           sign, or
 
11      (b)  Establishes that the person conducting the business is
 
12           generally known by his creditors to be substantially
 
13           engaged in selling the goods of others, or
 
14      (c)  Complies with the filing provisions of the Article on
 
15           Secured Transactions (Article 9).
 
16      (4)] (3)  Any "or return" term of a contract for sale is to
 
17 be treated as a separate contract for sale within the statute of
 
18 frauds section of this Article (section 490:2-201) and as
 
19 contradicting the sale aspect of the contract within the
 
20 provisions of this Article on parol or extrinsic evidence
 
21 (section 490:2-202)."
 
22      SECTION 8.  Section 490:2-502, Hawaii Revised Statutes, is
 
23 amended to read as follows:
 

 
Page 218                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      "490:2-502  Buyer's right to goods on seller's repudiation,
 
 2 failure to deliver, or insolvency.(1)  Subject to [subsection]
 
 3 subsections (2) and (3) even though the goods have not been
 
 4 shipped a buyer who has paid a part or all of the price of goods
 
 5 in which he has a special property under the provisions of the
 
 6 immediately preceding section may on making and keeping good a
 
 7 tender of any unpaid portion of their price recover them from the
 
 8 seller if:
 
 9      (a)  In the case of goods bought for personal, family, or
 
10           household purposes, the seller repudiates or fails to
 
11           delivery as required by the contract; or
 
12      (b)  In all cases, the seller becomes insolvent within ten
 
13           days after receipt of the first installment on their
 
14           price.
 
15      (2)  The buyer's right to recover the goods under subsection
 
16 (1)(a) vests upon acquisition of a special property, even if the
 
17 seller had not then repudiated or failed to deliver.
 
18      [(2)] (3)  If the identification creating his special
 
19 property has been made by the buyer he acquires the right to
 
20 recover the goods only if they conform to the contract for sale."
 
21      SECTION 9.  Section 490:2-716, Hawaii Revised Statutes, is
 
22 amended by amending subsection (3) to read as follows:
 
23      "(3)  The buyer has a right of replevin for goods identified
 

 
Page 219                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 to the contract if after reasonable effort he is unable to effect
 
 2 cover for such goods or the circumstances reasonably indicate
 
 3 that such effort will be unavailing or if the goods have been
 
 4 shipped under reservation and satisfaction of the security
 
 5 interest in them has been made or tendered.  In the case of goods
 
 6 bought for personal, family, or household purposes, the buyer's
 
 7 right of replevin vests upon acquisition of a special property,
 
 8 even if the seller had not then repudiated or failed to deliver."
 
 9      SECTION 10.  Section 490:2A-103, Hawaii Revised Stautes, is
 
10 amended by amending subsection (c) to read as follows:
 
11      "(c)  The following definitions in other Articles apply to
 
12 this Article:
 
13      "Account".  Section [490:9-106.] 490:9-102(a).
 
14      "Between merchants".  Section 490:2-104(3).
 
15      "Buyer".  Section 490:2-103(1)(a).
 
16      "Chattel paper".  Section [490:9-105(1)(b).] 490:9-102(a).
 
17      "Consumer goods".  Section [490:9-109(1).] 490:9-102(a).
 
18      "Document".  Section [490:9-105(1)(f).] 490:9-102(a).
 
19      "Entrusting".  Section 490:2-403(3).
 
20      ["General intangibles".  Section 490:9-106.] "General
 
21 intangible".  Section 490:9-102(a).
 
22      "Good faith".  Section 490:2-103(1)(b).
 
23      "Instrument".  Section [490:9-105(1)(j).] 490:9-102(a).
 

 
Page 220                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1      "Merchant".  Section 490:2-104(1).
 
 2      "Mortgage".  Section [490:9-105(1)(k).] 490:9-102(a).
 
 3      "Pursuant to commitment".  Section [490:9-105(1)(l).]
 
 4 490:9-102(a).
 
 5      "Receipt".  Section 490:2-103(1)(c).
 
 6      "Sale".  Section 490:2-106(1).
 
 7      "Sale on approval".  Section 490:2-326.
 
 8      "Sale or return".  Section 490:2-326.
 
 9      "Seller".  Section 490:2-103(1)(d)."
 
10      SECTION 11.  Section 490:2A-303, Hawaii Revised Statutes, is
 
11 amended to read as follows:
 
12      "490:2A-303  Alienability of party's interest under lease
 
13 contract or of lessor's residual interest in goods; delegation of
 
14 performance; transfer of rights.(a)  As used in this section,
 
15 "creation of a security interest" includes the sale of a lease
 
16 contract that is subject to Article 9, Secured Transactions, by
 
17 reason of section [490:9-102(1)(b).] 490:9-109(a)(3).
 
18      (b)  Except as provided in [subsections] subsection (c) and
 
19 [(d),] section 490:9-407, a provision in a lease agreement which
 
20 (i) prohibits the voluntary or involuntary transfer, including a
 
21 transfer by sale, sublease, creation or enforcement of a security
 
22 interest, or attachment, levy, or other judicial process, of an
 
23 interest of a party under the lease contract or of the lessor's
 

 
Page 221                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1 residual interest in the goods, or (ii) makes such a transfer an
 
 2 event of default, gives rise to the rights and remedies provided
 
 3 in subsection [(e),] (d), but a transfer that is prohibited or is
 
 4 an event of default under the lease agreement is otherwise
 
 5 effective.
 
 6      [(c)  A provision in a lease agreement which (i) prohibits
 
 7 the creation or enforcement of a security interest in an interest
 
 8 of a party under the lease contract or in the lessor's residual
 
 9 interest in the goods, or (ii) makes such a transfer an event of
 
10 default, is not enforceable unless, and then only to the extent
 
11 that, there is an actual transfer by the lessee of the lessee's
 
12 right of possession or use of the goods in violation of the
 
13 provision or an actual delegation of a material performance of
 
14 either party to the lease contract in violation of the provision.
 
15 Neither the granting nor the enforcement of a security interest
 
16 in (i) the lessor's interest under the lease contract or (ii) the
 
17 lessor's residual interest in the goods is a transfer that
 
18 materially impairs the prospect of obtaining return performance
 
19 by, materially changes the duty of, or materially increases the
 
20 burden or risk imposed on, the lessee within the purview of
 
21 subsection (e) unless, and then only to the extent that, there is
 
22 an actual delegation of a material performance of the lessor.
 
23      (d)] (c)  A provision in a lease agreement which (i)
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 prohibits a transfer of a right to damages for default with
 
 2 respect to the whole lease contract or of a right to payment
 
 3 arising out of the transferor's due performance of the
 
 4 transferor's entire obligation, or (ii) makes such a transfer an
 
 5 event of default, is not enforceable, and such a transfer is not
 
 6 a transfer that materially impairs the prospect of obtaining
 
 7 return performance by, materially changes the duty of, or
 
 8 materially increases the burden or risk imposed on, the other
 
 9 party to the lease contract within the purview of subsection
 
10 [(e).] (d).
 
11      [(e)] (d)  Subject to [subsections] subsection (c) and
 
12 [(d):] section 490:9-407:
 
13      (1)  If a transfer is made which is made an event of default
 
14           under a lease agreement, the party to the lease
 
15           contract not making the transfer, unless that party
 
16           waives the default or otherwise agrees, has the rights
 
17           and remedies described in section 490:2A-501(b);
 
18      (2)  If paragraph (1) is not applicable and if a transfer is
 
19           made that (i) is prohibited under a lease agreement or
 
20           (ii) materially impairs the prospect of obtaining
 
21           return performance by, materially changes the duty of,
 
22           or materially increases the burden or risk imposed on,
 
23           the other party to the lease contract, unless the party
 

 
Page 223                                                   
                                     H.B. NO.1626       
                                                        
                                                        

 
 1           not making the transfer agrees at any time to the
 
 2           transfer in the lease contract or otherwise, then,
 
 3           except as limited by contract, (i) the transferor is
 
 4           liable to the party not making the transfer for damages
 
 5           caused by the transfer to the extent that the damages
 
 6           could not reasonably be prevented by the party not
 
 7           making the transfer and (ii) a court having
 
 8           jurisdiction may grant other appropriate relief,
 
 9           including cancellation of the lease contract or an
 
10           injunction against the transfer.
 
11      [(f)] (e)  A transfer of "the lease" or of "all my rights
 
12 under the lease", or a transfer in similar general terms, is a
 
13 transfer of rights and, unless the language or the circumstances,
 
14 as in a transfer for security, indicate the contrary, the
 
15 transfer is a delegation of duties by the transferor to the
 
16 transferee.  Acceptance by the transferee constitutes a promise
 
17 by the transferee to perform those duties.  The promise is
 
18 enforceable by either the transferor or the other party to the
 
19 lease contract.
 
20      [(g)] (f)  Unless otherwise agreed by the lessor and the
 
21 lessee, a delegation of performance does not relieve the
 
22 transferor as against the other party of any duty to perform or
 
23 of any liability for default.
 

 
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 1      [(h)] (g)  In a consumer lease, to prohibit the transfer of
 
 2 an interest of a party under the lease contract or to make a
 
 3 transfer an event of default, the language must be specific, by a
 
 4 writing, and conspicuous."
 
 5      SECTION 12.  Section 490:2A-307, Hawaii Revised Statutes, is
 
 6 amended to read as follows:
 
 7      "490:2A-307  Priority of liens arising by attachment or
 
 8 levy on, security interests in, and other claims to goods.  (a)
 
 9 Except as otherwise provided in section 490:2A-306, a creditor of
 
10 a lessee takes subject to the lease contract.
 
11      (b)  Except as otherwise provided in [subsections]
 
12 subsection (c) [and (d)] and in sections 490:2A-306 and
 
13 490:2A-308, a creditor of a lessor takes subject to the lease
 
14 contract unless[:
 
15      (1)  The] the creditor holds a lien that attached to the
 
16           goods before the lease contract became enforceable[;
 
17      (2)  The creditor holds a security interest in the goods and
 
18           the lessee did not give value and receive delivery of
 
19           the goods without knowledge of the security interest;
 
20           or
 
21      (3)  The creditor holds a security interest in the goods
 
22           which was perfected (section 490:9-303) before the
 
23           lease contract became enforceable].
 

 
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 1      [(c)  A lessee in the ordinary course of business takes the
 
 2 leasehold interest free of a security interest in the goods
 
 3 created by the lessor even though the security interest is
 
 4 perfected (section 490:9-303) and the lessee knows of its
 
 5 existence.
 
 6      (d)  A lessee other than a lessee in the ordinary course of
 
 7 business takes the leasehold interest free of a security interest
 
 8 to the extent that it secures future advances made after the
 
 9 secured party acquires knowledge of the lease or more than forty-
 
10 five days after the lease contract becomes enforceable, whichever
 
11 first occurs, unless the future advances are made pursuant to a
 
12 commitment entered into without knowledge of the lease and before
 
13 the expiration of the forty-five-day period.]
 
14      (c)  Except as otherwise provided in sections 490:9-317,
 
15 490:9-321, and 490:9-323, a lessee takes a leasehold interest
 
16 subject to a security interest held by a creditor of the lessor."
 
17      SECTION 13.  Section 490:2A-309, Hawaii Revised Statutes, is
 
18 amended by amending subsection (a) to read as follows:
 
19      "(a)  In this section:
 
20      (1)  Goods are "fixtures" when they become so related to
 
21           particular real estate that an interest in them arises
 
22           under real estate law;
 
23      (2)  A "fixture filing" is the filing, in the office where a
 

 
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 1           record of a mortgage on the real estate would be filed
 
 2           or recorded, of a financing statement covering goods
 
 3           that are or are to become fixtures and conforming to
 
 4           the requirements of section [490:9-402(5);]
 
 5           490:9-502(a) and (b);
 
 6      (3)  A lease is a "purchase money lease" unless the lessee
 
 7           has possession or use of the goods or the right to
 
 8           possession or use of the goods before the lease
 
 9           agreement is enforceable;
 
10      (4)  A mortgage is a "construction mortgage" to the extent
 
11           it secures an obligation incurred for the construction
 
12           of an improvement on land including the acquisition
 
13           cost of the land, if the recorded writing so indicates;
 
14           and
 
15      (5)  "Encumbrance" includes real estate mortgages and other
 
16           liens on real estate and all other rights in real
 
17           estate that are not ownership interests."
 
18      SECTION 14.  Section 490:4-210, Hawaii Revised Statutes, is
 
19 amended by amending subsection (c) to read as follows:
 
20      "(c)  Receipt by a collecting bank of a final settlement for
 
21 an item is a realization on its security interest in the item,
 
22 accompanying documents, and proceeds.  So long as the bank does
 
23 not receive final settlement for the item or give up possession
 

 
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 1 of the item or accompanying documents for purposes other than
 
 2 collection, the security interest continues to that extent and is
 
 3 subject to Article 9, but:
 
 4      (1)  No security agreement is necessary to make the security
 
 5           interest enforceable (section [490:9-203(1)(a));]
 
 6           490:9-203(b)(3)(A);
 
 7      (2)  No filing is required to perfect the security interest;
 
 8           and
 
 9      (3)  The security interest has priority over conflicting
 
10           perfected security interests in the item, accompanying
 
11           documents, or proceeds."
 
12      SECTION 15.  Section 490:7-503, Hawaii Revised Statutes, is
 
13 amended by amending subsection (1) to read as follows:
 
14      "(1)  A document of title confers no right in goods against
 
15 a person who before issuance of the document had a legal interest
 
16 or a perfected security interest in them and who neither
 
17      (a)  Delivered or entrusted them or any document of title
 
18           covering them to the bailor or his nominee with actual
 
19           or apparent authority to ship, store or sell or with
 
20           power to obtain delivery under this Article (section
 
21           490:7-403) or with power of disposition under this
 
22           chapter (sections 490:2-403 and [490:9-307)] 490:9-320)
 
23           or other statute or rule of law; nor
 

 
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 1      (b)  Acquiesced in the procurement by the bailor or his
 
 2           nominee of any document of title."
 
 3      SECTION 16.  Section 490:8-103, Hawaii Revised Statutes, is
 
 4 amended by amending subsection (f) to read as follows:
 
 5      "(f)  A commodity contract, as defined in section
 
 6 [490:9-115,] 490:9-102(a), is not a security or a financial
 
 7 asset."
 
 8      SECTION 17.  Section 490:8-106, Hawaii Revised Statutes, is
 
 9 amended as follows:
 
10      1.  By amending subsection (d) to read:
 
11      "(d)  A purchaser has "control" of a security entitlement
 
12 if:
 
13      (1)  The purchaser becomes the entitlement holder; [or]
 
14      (2)  The securities intermediary has agreed that it will
 
15           comply with entitlement orders originated by the
 
16           purchaser without further consent by the entitlement
 
17           holder[.]; or
 
18      (3)  Another person has control of the security entitlement
 
19           on behalf of the purchaser or, having previously
 
20           acquired control of the security entitlement,
 
21           acknowledges that it has control on behalf of the
 
22           purchaser."
 
23      2.  By amending subsection (f) to read:
 

 
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 1      "(f)  A purchaser who has satisfied the requirements of
 
 2 subsection [(c)(2)] (c) or [(d)(2)] (d) has control, even if the
 
 3 registered owner in the case of subsection [(c)(2)] (c) or the
 
 4 entitlement holder in the case of subsection [(d)(2)] (d) retains
 
 5 the right to make substitutions for the uncertificated security
 
 6 or security entitlement, to originate instructions or entitlement
 
 7 orders to the issuer or securities intermediary, or otherwise to
 
 8 deal with the uncertificated security or security entitlement."
 
 9      SECTION 18.  Section 490:8-110, Hawaii Revised Statutes, is
 
10 amended by amending subsection (e) to read as follows:
 
11      "(e)  The following rules determine a "securities
 
12 intermediary's jurisdiction" for purposes of this section:
 
13      (1)  If an agreement between the securities intermediary and
 
14           its entitlement holder [specifies that it is governed
 
15           by the law of a particular jurisdiction,] governing the
 
16           securities account expressly provides that a particular
 
17           jurisdiction is the securities intermediary's
 
18           jurisdiction for purposes of this part, this article,
 
19           or this chapter, that jurisdiction is the securities
 
20           intermediary's jurisdiction.
 
21      (2)  If paragraph (1) does not apply and an agreement
 
22           between the securities intermediary and its entitlement
 
23           holder governing the securities account expressly
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           provides that the agreement is governed by the law of a
 
 2           particular jurisdiction, that jurisdiction is the
 
 3           securities intermediary's jurisdiction.
 
 4     [(2)] (3)  If neither paragrpah (1) nor paragraph (2) applies
 
 5           and an agreement between the securities intermediary
 
 6           and its entitlement holder [does not specify the
 
 7           governing law as provided in paragraph (1), but]
 
 8           governing the securities account expressly [specifies]
 
 9           provides that the securities account is maintained at
 
10           an office in a particular jurisdiction, that
 
11           jurisdiction is the securities intermediary's
 
12           jurisdiction.
 
13     [(3)] (4)  If [an agreement between the securities
 
14           intermediary and its entitlement holder does not
 
15           specify a jurisdiction as provided in paragraph (1) or
 
16           (2),] none of the preceding paragraphs applies, the
 
17           securities intermediary's jurisdiction is the
 
18           jurisdiction in which [is located] the office
 
19           identified in an account statement as the office
 
20           serving the entitlement holder's account[.] is located.
 
21     [(4)] (5)  If [an agreement between the securities
 
22           intermediary and its entitlement holder does not
 
23           specify a jurisdiction as provided in paragraph (1) or
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           (2) and an account statement does not identify an
 
 2           office serving the entitlement holder's account as
 
 3           provided in paragraph (3),] none of the preceding
 
 4           paragraphs applies, the securities intermediary's
 
 5           jurisdiction is the jurisdiction in which [is located]
 
 6           the chief executive office of the securities
 
 7           intermediary[.] is located."
 
 8      SECTION 19.  Section 490:8-301, Hawaii Revised Statutes, is
 
 9 amended by amending subsection (a) to read as follows:
 
10      "(a)  Delivery of a certificated security to a purchaser
 
11 occurs when:
 
12      (1)  The purchaser acquires possession of the security
 
13           certificate;
 
14      (2)  Another person, other than a securities intermediary,
 
15           either acquires possession of the security certificate
 
16           on behalf of the purchaser or, having previously
 
17           acquired possession of the certificate, acknowledges
 
18           that it holds for the purchaser; or
 
19      (3)  A securities intermediary acting on behalf of the
 
20           purchaser acquires possession of the security
 
21           certificate, only if the certificate is in registered
 
22           form and [has been] is (i) registered in the name of
 
23           the purchaser, (ii) payable to the order of the
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           purchaser, or (iii) specially indorsed to the purchaser
 
 2           by an effective indorsement[.] and has not been
 
 3           indorsed to the securities intermediary or in blank."
 
 4      SECTION 20.  Section 490:8-302, Hawaii Revised Statutes, is
 
 5 amended by amending subsection (a) to read as follows:
 
 6      "(a)  Except as otherwise provided in subsections (b) and
 
 7 (c), [upon delivery] a purchaser of a certificated or
 
 8 uncertificated security [to a purchaser, the purchaser] acquires
 
 9 all rights in the security that the transferor had or had power
 
10 to transfer."
 
11      SECTION 21.  Section 490:8-510, Hawaii Revised Statutes, is
 
12 amended to read as follows:
 
13      "490:8-510  Rights of purchaser of security entitlement
 
14 from entitlement holder.(a)  [An] In a case not covered by the
 
15 priority rules in Article 9 or the rules stated in subsection
 
16 (c), an action based on an adverse claim to a financial asset or
 
17 security entitlement, whether framed in conversion, replevin,
 
18 constructive trust, equitable lien, or other theory, may not be
 
19 asserted against a person who purchases a security entitlement,
 
20 or an interest therein, from an entitlement holder if the
 
21 purchaser gives value, does not have notice of the adverse claim,
 
22 and obtains control.
 
23      (b)  If an adverse claim could not have been asserted
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1 against an entitlement holder under section 490:8-502, the
 
 2 adverse claim cannot be asserted against a person who purchases a
 
 3 security entitlement, or an interest therein, from the
 
 4 entitlement holder.
 
 5      (c)  In a case not covered by the priority rules in
 
 6 [article] Article 9, a purchaser for value of a security
 
 7 entitlement, or an interest therein, who obtains control has
 
 8 priority over a purchaser of a security entitlement, or an
 
 9 interest therein, who does not obtain control.  [Purchasers]
 
10 Except as otherwise provided in subsection (d), purchasers who
 
11 have control rank [equally, except that a] according to priority
 
12 in time of:
 
13      (1)  The purchaser's becoming the person for whom the
 
14           securities account, in which the security entitlement
 
15           is carried, is maintained, if the purchaser obtained
 
16           control under section 490:8-106(d)(1);
 
17      (2)  The securities intermediary's agreement to comply with
 
18           the purchaser's entitlement orders with respect to
 
19           security entitlements carried or to be carried in the
 
20           securities account in which the security entitlement is
 
21           carried, if the purchaser obtained control under
 
22           section 490:8-106(d)(2); or
 
23      (3)  If the purchaser obtained control through another
 

 
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                                     H.B. NO.1626       
                                                        
                                                        

 
 1           person under section 490:8-106(d)(3), the time on which
 
 2           priority would be based under this subsection if the
 
 3           other person were the secured party.
 
 4      (d)  A securities intermediary as purchaser has priority
 
 5 over a conflicting purchaser who has control unless otherwise
 
 6 agreed by the securities intermediary."
 
 7      SECTION 22.  Article 9 of chapter 490, Hawaii Revised
 
 8 Statutes, in effect on June 30, 2001, is repealed. 
 
 9      SECTION 23.  Statutory material to be repealed is bracketed.
 
10 New statutory material is underscored. 
 
11      SECTION 24.  This Act shall take effect on July 1, 2001.
 
12 
 
13                           INTRODUCED BY: ________________________