Pennsylvania Act 1992-97 — UNIFORM COMMERCIAL CODE MODERNIZATION ACT - OMNIBUS AMENDMENTS

Act text

Session of 1992

No. 1992-97

HB 871

AN ACT

Amending Title 13 (Commercial Code) of the Pennsylvania Consolidated Statutes, conforming the text of the title to the current official text of the Uniform Commercial Code relating to leases, negotiable instruments, bank deposits and collections, funds transfers and uncertificated securities; repealing provisions relating to bulk transfers; and making editorial changes.

The General Assembly of the Commonwealth of Pennsylvania hereby enacts as follows:

Section 1. This act shall be known and may be cited as the Uniform Commercial Code Modernization Act.

Section 2. Sections 1101, 1105(b), 1201, 1207, 2101, 2103(c), 2403(d) and 2511(c) of Title 13 of the Pennsylvania Consolidated Statutes are amended to read:

§ 1101. Short title of title.

This title shall be known and may be cited as the ["]Uniform Commercial Code.["]

§ 1105. Territorial application of title; power of parties to choose applicable law.

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(b) Limitations on power of parties to choose applicable law.--Where one of the following provisions of this title specifies the applicable law, that provision governs and a contrary agreement is effective only to the extent permitted by the law (including the conflict of laws rules) so specified:

Section 2402 (relating to rights of creditors of seller against sold goods).

Sections 2A105 (relating to territorial application of division to goods covered by certificate of title) and 2A106 (relating to limitation on power of parties to consumer lease to choose applicable law and judicial forum).

Section 4102 (relating to applicability of division on bank deposits and collections).

[Section 6102 (relating to bulk transfers subject to division on bulk transfers).]

Section 4A507 (relating to choice of law).

Section 8106 (relating to applicability of division on investment securities).

Section 9103 (relating to perfection provisions of division on secured transactions).

§ 1201. General definitions.

Subject to additional definitions contained in the subsequent provisions of this title which are applicable to specific provisions of this title, the following words and phrases when used in this title shall have, unless the context clearly indicates otherwise, the meanings given to them in this section:

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

"Aggrieved party." A party entitled to resort to a remedy.

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

"Airbill." A document serving for air transportation as a bill of lading does for marine or rail transportation, and includes an air consignment note or air waybill.

"Bank." Any person engaged in the business of banking.

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

"Bill of lading." A document evidencing the receipt of goods for shipment issued by a person engaged in the business of transporting or forwarding goods, and includes an airbill.

"Branch." Includes a separately incorporated foreign branch of a bank.

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

"Buyer in ordinary course of business." A person who in good faith and without knowledge that the sale to him is in violation of the ownership rights or security interest of a third party in the goods buys in ordinary course from a person in the business of selling goods of that kind but does not include a pawnbroker. All persons who sell minerals or the like (including oil and gas) at wellhead or minehead shall be deemed to be persons in the business of selling goods of that kind.

"Buying." Buying may be for cash or by exchange of other property or on secured or unsecured credit and includes receiving goods or documents of title under a preexisting contract for sale but does not include a transfer in bulk or as security for or in total or partial satisfaction of a money debt.

"Conspicuous." A term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it.

A printed heading in capitals (as: NONNEGOTIABLE BILL OF LADING) is conspicuous.

Language in the body of a form is conspicuous if it is in larger or other contrasting type or color. But in a telegram any stated term is conspicuous.

Whether a term or clause is conspicuous or not is for decision by the court.

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

"Creditor." Includes:

a general creditor;

a secured creditor;

a lien creditor; and

any representative of creditors, including an assignee for the benefit of creditors, a trustee in bankruptcy, a receiver in equity and an executor or administrator of an insolvent debtor's or assignor's estate.

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

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

"Discover." See definition of "notice."

"Document of title." Includes:

a bill of lading;

a dock warrant;

a dock receipt;

a warehouse receipt or order for the delivery of goods; and

any other document which in the regular course of business or financing is treated as adequately evidencing that the person in possession of it is entitled to receive, hold and dispose of the document and the goods it covers.

To be a document of title a document must purport to be issued by or addressed to a bailee and purport to cover goods in the possession of the bailee which are either identified or are fungible portions of an identified mass.

"Fault." Wrongful act, omission or breach.

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

"Genuine." Free of forgery or counterfeiting.

"Good faith." Honesty in fact in the conduct or transaction concerned.

"Holder." [A person who is in possession of a document of title or an instrument or an investment security drawn, issued or indorsed to him or to his order or to bearer or in blank.]

(1) With respect to a negotiable instrument, the person in possession if the instrument is payable to bearer or, in the case of an instrument payable to an identified person, if the identified person is in possession.

(2) With respect to a document of title, the person in possession if the goods are deliverable to bearer or to the order of the person in possession.

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

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

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

"Knows" or "knowledge." See definition of "notice."

"Learn." See definition of "notice."

"Money." A medium of exchange authorized or adopted by a domestic or foreign government [as a part of its currency.] and includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more nations.

"Notice." A person has "notice" of a fact when:

(1) he has actual knowledge of it;

(2) he has received a notice or notification of it; or

(3) from all the facts and circumstances known to him at the time in question he has reason to know that it exists.

A person "knows" or has "knowledge" of a fact when he has actual knowledge of it. "Discover" or "learn" or a word or phrase of similar import refers to knowledge rather than to reason to know. The time and circumstances under which a notice or notification may cease to be effective are not determined by this title.

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

(1) it comes to his attention; or

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

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

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

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

"Person." Includes an individual or an organization. See section 1102 (relating to purposes; rules of construction; variation by agreement).

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

"Purchase." Includes taking by sale, discount, negotiation, mortgage, pledge, lien, issue or reissue, gift or any other voluntary transaction creating an interest in property.

"Purchaser." A person who takes by purchase.

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

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

"Rights." Includes remedies.

"Security interest."

[A security interest means an interest in personal property or fixtures which secures payment or performance of an obligation.

The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer (section 2401) is limited in effect to a reservation of a "security interest."

The term also includes any interest of a buyer of accounts or chattel paper which is subject to Division 9 (relating to secured transactions).

The special property interest of a buyer of goods on identification of such goods to a contract for sale under section 2401 (relating to passing of title; reservation for security) is not a "security interest," but a buyer may also acquire a "security interest" by complying with Division 9.

Unless a lease or consignment is intended as security, reservation of title thereunder is not a "security interest" but a consignment is in any event subject to the provisions on consignment sales (section 2326).

Whether a lease is intended as security is to be determined by the facts of each case; however:

(1) the inclusion of an option to purchase does not of itself make the lease one intended for security; and

(2) an agreement that upon compliance with the terms of the lease the lessee shall become or has the option to become the owner of the property for no additional consideration or for a nominal consideration does make the lease one intended for security.]

(1) General definition.--A security interest means an interest in personal property or fixtures which secures payment or performance of an obligation.

(2) Retention or reservation of title to delivered goods.--The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer (section 2401) is limited in effect to a reservation of a "security interest."

(3) Buyers of accounts or chattel paper.--The term "security interest" also includes any interest of a buyer of accounts or chattel paper which is subject to Division 9 (relating to secured transactions).

(4) Buyer's interest in identified goods.--The special property interest of a buyer of goods on identification of those goods to a contract for sale under section 2401 (relating to passing of title; reservation for security; limited application of section) is not a "security interest," but a buyer may also acquire a "security interest" by complying with Division 9.

(5) Consignments.--Unless a consignment is intended as security, reservation of title thereunder is not a "security interest," but a consignment in any event is subject to the provisions on consignment sales (section 2326).

(6) Determination of lease or security interest.--Whether a transaction creates a lease or security interest is determined by the facts of each case; however:

(i) A transaction creates a security interest if the consideration the lessee is to pay the lessor for the right to possession and use of the goods is an obligation for the term of the lease not subject to termination by the lessee and:

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

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

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

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

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

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

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

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

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

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

(iii) For purposes of determining whether the transaction is a lease or a security interest:

(A) Additional consideration is not nominal if:

(I) when the option to renew the lease is granted to the lessee, the rent is stated to be the fair market rent for the use of the goods for the term of the renewal determined at the time the option is to be performed; or

(II) when the option to become the owner of the goods is granted to the lessee, the price is stated to be the fair market value of the goods determined at the time the option is to be performed.

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

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

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

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

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

"Surety." Includes guarantor.

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

"Term." That portion of an agreement which relates to a particular matter.

"Unauthorized signature [or indorsement]." A signature [or indorsement] made without actual, implied or apparent authority and includes a forgery.

"Value." Except as otherwise provided with respect to negotiable instruments (section 3303) and bank collections [(sections 4208 and 4209)] (sections 4210 and 4211), a person gives "value" for rights if he acquires them:

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

(2) as security for or in total or partial satisfaction of a preexisting claim;

(3) by accepting delivery pursuant to a preexisting contract for purchase; or

(4) generally, in return for any consideration sufficient to support a simple contract.

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

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

§ 1207. Performance or acceptance under reservation of rights.

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

(b) Exception.--Subsection (a) does not apply to an accord and satisfaction.

§ 2101. Short title of division.

This division shall be known and may be cited as the ["]Uniform Commercial Code[--] , Article 2, Sales.["]

§ 2103. Definitions and index of definitions.

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(c) Index of definitions in other divisions.--The following definitions in other divisions apply to this division:

"Check." Section 3104.

"Consignee." Section 7102.

"Consignor." Section 7102.

"Consumer goods." Section 9109.

"Dishonor." [Section 3507] Section 3502 .

"Draft." Section 3104.

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

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(d) Rights of other purchasers and lien creditors.--The rights of other purchasers of goods and of lien creditors are governed by [Division 6 (relating to bulk transfers),] Division 7 (relating to documents of title) and Division 9 (relating to secured transactions).

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

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(c) Payment by check.--Subject to the provisions of this title on the effect of an instrument on an obligation [(section 3802)] (section 3310) , payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment.

Section 3. Title 13 is amended by adding a division to read:

DIVISION 2A

LEASES

Chapter

2A1. General Provisions

2A2. Formation and Construction of Lease Contract

2A3. Effect of Lease Contract

2A4. Performance of Lease Contract: Repudiated, Substituted

and Excused

2A5. Default

Section 4. Division 3 of Title 13 is repealed.

Section 5. Title 13 is amended by adding a division to read:

DIVISION 3

NEGOTIABLE INSTRUMENTS

Chapter

31. General Provisions and Definitions

32. Negotiation, Transfer and Indorsement

33. Enforcement of Instruments

34. Liability of Parties

35. Dishonor

36. Discharge and Payment

Section 6. Sections 4101, 4102, 4103, 4104 and 4105 of Title 13 are amended to read:

§ 4101. Short title of division.

This division shall be known and may be cited as the ["]Uniform Commercial Code[--] , Article 4, Bank Deposits and Collections.["]

§ 4102. Applicability.

(a) Commercial paper and investment securities.--To the extent that items within this division are also within [the scope of] Division 3 (relating to [commercial paper] negotiable instruments ) and Division 8 (relating to investment securities), they are subject to the provisions of those divisions. [In the event of conflict the provisions of this division govern those of Division 3 but the provisions of Division 8 govern those of this division.] If there is conflict, this division governs Division 3, but Division 8 governs this division.

(b) [Liability] Law applicable regarding liability of bank with respect to items handled.--The liability of a bank for action or nonaction with respect to [any] an item handled by it for purposes of presentment, payment or collection is governed by the law of the place where the bank is located. In the case of action or nonaction by or at a branch or separate office of a bank, its liability is governed by the law of the place where the branch or separate office is located.

§ 4103. Variation by agreement; measure of damages; [certain] action constituting ordinary care.

(a) Variation by agreement.--The effect of the provisions of this division may be varied by agreement [except that no agreement can] , but the parties to the agreement cannot disclaim the responsibility of a bank for its [own] lack of good faith or failure to exercise ordinary care or [can] limit the measure of damages for [such] the lack or failure[; but] . However, the parties may determine by agreement [determine] the standards by which [such responsibility] the responsibility of the bank is to be measured if [such] those standards are not manifestly unreasonable.

(b) Rules and regulations having effect of agreements.--Federal Reserve regulations and operating [letters, clearing house] circulars, clearinghouse rules[,] and the like[,] have the effect of agreements under subsection (a), whether or not specifically assented to by all parties interested in items handled.

(c) Certain action constituting ordinary care.--Action or nonaction approved by this division or pursuant to Federal Reserve regulations or operating [letters constitutes] circulars is the exercise of ordinary care and, in the absence of special instructions, action or nonaction consistent with [clearing house] clearinghouse rules and the like or with a general banking usage not disapproved by this division, is prima facie [constitutes] the exercise of ordinary care.

(d) Effect of approval of certain procedures by this division .--The specification or approval of certain procedures by this division [does not constitute] is not disapproval of other procedures [which] that may be reasonable under the circumstances.

(e) Measure of damages for failure to exercise ordinary care.--The measure of damages for failure to exercise ordinary care in handling an item is the amount of the item reduced by an amount [which] that could not have been realized by the [use] exercise of ordinary care[, and where] . If there is also bad faith it includes any other damages[, if any suffered by] the party suffered as a proximate consequence.

§ 4104. Definitions and index of definitions.

(a) Definitions.--The following words and phrases when used in this division shall have, unless the context clearly indicates otherwise, the meanings given to them in this subsection:

"Account." Any deposit or credit account with a bank [and includes a checking, time, interest or savings account.] , including a demand, time, savings, passbook, share draft or like account, other than an account evidenced by a certificate of deposit.

"Afternoon." The period of a day between noon and midnight.

"Banking day." [That] The part of [any] a day on which a bank is open to the public for carrying on substantially all of its banking functions.

["Clearing house." Any] "Clearinghouse." An association of banks or other payors regularly clearing items.

"Customer." [Any] A person having an account with a bank or for whom a bank has agreed to collect items [and includes] , including a bank [carrying] that maintains an account [with] at another bank.

"Documentary draft." [Any negotiable or nonnegotiable draft with accompanying documents, securities or other papers to be delivered against honor of the draft.] A draft to be presented for acceptance or payment if specified documents, certificated securities (section 8102) or instructions for uncertificated securities (section 8308) or other certificates, statements or the like are to be received by the drawee or other payor before acceptance or payment of the draft.

"Draft." A draft as defined in section 3104 (relating to negotiable instrument) or an item, other than an instrument, that is an order.

"Drawee." A person ordered in a draft to make payment.

"Item." [Any instrument for the payment of money even though it is not negotiable but does not include money.] An instrument or a promise or order to pay money handled by a bank for collection or payment. The term does not include a payment order governed by Division 4A (relating to funds transfers) or a credit or debit card slip.

"Midnight deadline." With respect to a bank is midnight on its next banking day following the banking day on which it receives the relevant item or notice or from which the time for taking action commences to run, whichever is later.

["Properly payable." Includes the availability of funds for payment at the time of decision to pay or dishonor.]

"Settle." To pay in cash, by [clearing house] clearinghouse settlement, in a charge or credit or by remittance, or otherwise as [instructed] agreed . A settlement may be either provisional or final.

"Suspends payments." With respect to a bank means that it has been closed by order of the supervisory authorities, that a public officer has been appointed to take it over or that it ceases or refuses to make payments in the ordinary course of business.

(b) Index of other definitions in division.--Other definitions applying to this division and the sections in which they appear are:

"Agreement for electronic presentment." Section 4110.

"Bank." Section 4105.

"Collecting bank." Section 4105.

"Depositary bank." Section 4105.

"Intermediary bank." Section 4105.

"Payor bank." Section 4105.

"Presenting bank." Section 4105.

["Remitting bank." Section 4105.]

"Presentment notice." Section 4110.

(c) Index of definitions in other divisions.--The following definitions in other divisions apply to this division:

["Acceptance." Section 3410.

"Certificate of deposit." Section 3104.

"Certification." Section 3411.

"Check." Section 3104.

"Draft." Section 3104.

"Holder in due course." Section 3302.

"Notice of dishonor." Section 3508.

"Presentment." Section 3504.

"Protest." Section 3509.

"Secondary party." Section 3102.]

"Acceptance." Section 3409.

"Alteration." Section 3407.

"Cashier's check." Section 3104.

"Certificate of deposit." Section 3104.

"Certified check." Section 3409.

"Check." Section 3104.

"Good faith." Section 3103.

"Holder in due course." Section 3302.

"Instrument." Section 3104.

"Notice of dishonor." Section 3503.

"Order." Section 3103.

"Ordinary care." Section 3103.

"Person entitled to enforce." Section 3301.

"Presentment." Section 3501.

"Promise." Section 3103.

"Prove." Section 3103.

"Teller's check." Section 3104.

"Unauthorized signature." Section 3403.

(d) Applicability of general definitions and principles.--In addition Division 1 contains general definitions and principles of construction and interpretation applicable throughout this division.

§ 4105. ["Depositary] "Bank"; "depositary bank"; "intermediary bank"; "collecting bank"; "payor bank"; "presenting bank["; "remitting bank]."

The following words and phrases when used in this division shall have, unless the context clearly indicates otherwise, the meanings given to them in this section:

"Bank." A person engaged in the business of banking, including a savings bank, savings and loan association, credit union or trust company.

"Collecting bank." [Any] A bank handling [the] an item for collection except the payor bank.

"Depositary bank." The first bank to [which an item is transferred for collection] take an item even though it is also the payor bank unless the item is presented for immediate payment over the counter .

"Intermediary bank." [Any] A bank to which an item is transferred in course of collection except the depositary or payor bank.

"Payor bank." A bank [by which an item is payable as drawn or accepted.] that is the drawee of a draft.

"Presenting bank." [Any] A bank presenting an item except a payor bank.

["Remitting bank." Any payor or intermediary bank remitting for an item.]

Section 7. Title 13 is amended by adding a section to read:

§ 4106. Payable through or payable at bank; collecting bank.

(a) "Payable through" a bank.--If an item states that it is "payable through" a bank identified in the item, the item designates the bank as a collecting bank and does not by itself authorize the bank to pay the item, and the item may be presented for payment only by or through the bank.

(b) "Payable at" a bank.--If an item states that it is "payable at" a bank identified in the item, the item is equivalent to a draft drawn on the bank.

(c) Draft names nonbank drawee.--If a draft names a nonbank drawee and it is unclear whether a bank named in the draft is a co-drawee or a collecting bank, the bank is a collecting bank.

Section 8. Sections 4106, 4107, 4108 and 4109 of Title 13 are amended to read:

§ [4106] 4107 . Separate office of a bank.

A branch or separate office of a bank is a separate bank for the purpose of computing the time within which and determining the place at or to which action may be taken or notices or orders [shall] must be given under this division and under Division 3 (relating to [commercial paper] negotiable instruments ).

§ [4107] 4108 . Time of receipt of items.

(a) [Cut-off] Cutoff hour for handling and book entries.--For the purpose of allowing time to process items, prove balances and make the necessary entries on its books to determine its position for the day, a bank may fix an afternoon hour of 2 p.m. or later as a [cut-off] cutoff hour for the handling of money and items and the making of entries on its books.

(b) Items or deposits received after [cut-off] cutoff hour.--[Any] An item or deposit of money received on any day after a [cut-off] cutoff hour so fixed or after the close of the banking day may be treated as being received at the opening of the next banking day.

§ [4108] 4109 . Delays.

(a) [Delay] Two-banking-day delay permitted in effort to secure payment.--Unless otherwise instructed, a collecting bank in a good faith effort to secure payment [may, in the case of specific items] of a specified item drawn on a payor other than a bank, and with or without the approval of any person involved, may waive, modify or extend time limits imposed or permitted by this title for a period not [in excess of an] exceeding two additional banking [day] days without discharge of [secondary parties and without] drawers or indorsers or liability to its transferor or [any] a prior party.

(b) Delay excused by conditions beyond control of bank.--Delay by a collecting bank or payor bank beyond time limits prescribed or permitted by this title[,] or by instructions is excused if the delay is caused by interruption of communication or computer facilities, suspension of payments by another bank, war, emergency conditions , failure of equipment or other circumstances beyond the control of the bank [provided it] and the bank exercises such diligence as the circumstances require.

[§ 4109. Process of posting.

The "process of posting" means the usual procedure followed by a payor bank in determining to pay an item and in recording the payment, including one or more of the following or other steps as determined by the bank:

(1) Verification of any signature.

(2) Ascertaining that sufficient funds are available.

(3) Affixing a "paid" or other stamp.

(4) Entering a charge or entry to the account of a customer.

(5) Correcting or reversing an entry or erroneous action with respect to the item.]

Section 9. Title 13 is amended by adding sections to read:

§ 4110. Electronic presentment.

(a) Definition of "agreement for electronic presentment".--"Agreement for electronic presentment" means an agreement, clearinghouse rule or Federal Reserve regulation or operating circular, providing that presentment of an item may be made by transmission of an image of an item or information describing the item ("presentment notice") rather than delivery of the item itself. The agreement may provide for procedures governing retention, presentment, payment, dishonor and other matters concerning items subject to the agreement.

(b) When presentment made.--Presentment of an item pursuant to an agreement for presentment is made when the presentment notice is received.

(c) Presentment by presentment notice.--If presentment is made by presentment notice, a reference to "item" or "check" in this division means the presentment notice unless the context otherwise indicates.

§ 4111. Statute of limitations.

An action to enforce an obligation, duty or right arising under this division must be commenced within three years after the cause of action accrues.

Section 10. Sections 4201, 4202, 4203, 4204, 4205, 4206 and 4207 of Title 13 are amended to read:

§ 4201. [Presumption and duration of agency status] Status of collecting [banks] bank as agent and provisional status of credits; applicability of division; item indorsed "pay any bank."

(a) Agency status of bank and provisional status of settlement.--Unless a contrary intent clearly appears and [prior to] before the time that a settlement given by a collecting bank for an item is or becomes final [(sections 4211(c), 4212 and 4213) the bank] , the bank, with respect to the item, is an agent or sub-agent of the owner of the item and any settlement given for the item is provisional. This provision applies regardless of the form of indorsement or lack of indorsement and even though credit given for the item is subject to immediate withdrawal as of right or is in fact withdrawn; but the continuance of ownership of an item by its owner and any rights of the owner to proceeds of the item are subject to rights of a collecting bank , such as those resulting from outstanding advances on the item and [valid] rights of recoupment or setoff. [When] If an item is handled by banks for purposes of presentment, payment [and collection] , collection or return , the relevant provisions of this division apply even though action of the parties clearly establishes that a particular bank has purchased the item and is the owner of it.

(b) Effect of "pay any bank" indorsement.--After an item has been indorsed with the words "pay any bank" or the like, only a bank may acquire the rights of a holder until the item has been :

(1) [until the item has been] returned to the customer initiating collection; or

(2) [until the item has been] specially indorsed by a bank to a person who is not a bank.

§ 4202. Responsibility for collection or return ; when action [seasonable] timely .

(a) When collecting bank must [use] exercise ordinary care.--A collecting bank must [use] exercise ordinary care in:

(1) presenting an item or sending it for presentment;

(2) sending notice of dishonor or nonpayment or returning an item other than a documentary draft to the transferor of the bank [or directly to the depositary bank under section 4212(b) (relating to right of charge-back or refund)] after learning that the item has not been paid or accepted, as the case may be;

(3) settling for an item when the bank receives final settlement; and

(4) [making or providing for any necessary protest; and

(5)] notifying its transferor of any loss or delay in transit within a reasonable time after discovery thereof.

(b) [Seasonable action by bank.--A collecting bank taking proper action before its midnight deadline following receipt of an item, notice or payment acts seasonably; taking proper action within a reasonably longer time may be seasonable but the bank has the burden of so establishing.] Exercise of ordinary care.--A collecting bank exercises ordinary care under subsection (a) by taking proper action before its midnight deadline following receipt of an item, notice or settlement. Taking proper action within a reasonably longer time may constitute the exercise of ordinary care, but the bank has the burden of establishing timeliness.

(c) Nonliability of bank for action of others.--Subject to subsection (a)(1), a bank is not liable for the insolvency, neglect, misconduct, mistake or default of another bank or person or for loss or destruction of an item in the possession of others or in transit [or in the possession of others].

§ 4203. Effect of instructions.

Subject to [the provisions of] Division 3 [(relating to commercial paper)] (relating to negotiable instruments) concerning conversion of instruments [(section 3419) and the provisions of both Division 3 and this division concerning] (section 3420) and restrictive indorsements (section 3206) , only a collecting bank's transferor can give instructions [which] that affect the bank or constitute notice to it , and a collecting bank is not liable to prior parties for any action taken pursuant to [such] the instructions or in accordance with any agreement with its transferor.

§ 4204. Methods of sending and presenting; sending [direct] directly to payor bank.

(a) Collecting bank to send items by reasonably prompt method.--A collecting bank [must] shall send items by a reasonably prompt method , taking into consideration [any] relevant instructions, the nature of the item, the number of [such] those items on hand, [and] the cost of collection involved and the method generally used by it or others to present [such] those items.

(b) Persons to whom bank may send items.--A collecting bank may send:

(1) [any item direct] an item directly to the payor bank;

(2) [any item to any] an item to a nonbank payor if authorized by its transferor; and

(3) [any] an item other than documentary drafts to [any] a nonbank payor, if authorized by Federal Reserve regulation or operating [letter, clearing house rule] circular, clearinghouse rule or the like.

(c) Presentment where payor [bank] has requested.--Presentment may be made by a presenting bank at a place where the payor bank or other payor has requested that presentment be made.

[§ 4205. Supplying missing indorsement; no notice from prior indorsement.

(a) Supplying missing indorsement.--A depositary bank which has taken an item for collection may supply any indorsement of the customer which is necessary to title unless the item contains the words "payee's indorsement required" or the like. In the absence of such a requirement a statement placed on the item by the depositary bank to the effect that the item was deposited by a customer or credited to his account is effective as the indorsement of the customer.

(b) Effect of restrictive indorsement on intermediary and payor bank.--An intermediary bank, or payor bank which is not a depositary bank, is neither given notice nor otherwise affected by a restrictive indorsement of any person except the immediate transferor of the bank.]

§ 4205. Depositary bank holder of unindorsed item.

If a customer delivers an item to a depositary bank for collection:

(1) the depositary bank becomes a holder of the item at the time it receives the item for collection if the customer at the time of delivery was a holder of the item, whether or not the customer indorses the item, and, if the bank satisfies the other requirements of section 3302 (relating to holder in due course), it is a holder in due course; and

(2) the depositary bank warrants to collecting banks, the payor bank or other payor, and the drawer that the amount of the item was paid to the customer or deposited to the customer's account.

§ 4206. Transfer between banks.

Any agreed method [which] that identifies the transferor bank is sufficient for the further transfer of the item to another bank.

[§ 4207. Warranties of customer and collecting bank on transfer or presentment of items; time for claims.

(a) Warranties to payor or acceptor.--Each customer or collecting bank who obtains payment or acceptance of an item and each prior customer and collecting bank warrants to the payor bank or other payor who in good faith pays or accepts the item that:

(1) he has a good title to the item or is authorized to obtain payment or acceptance on behalf of one who has a good title;

(2) he has no knowledge that the signature of the maker or drawer is unauthorized, except that this warranty is not given by any customer or collecting bank that is a holder in due course and acts in good faith:

(i) to a maker with respect to the signature of the maker;

(ii) to a drawer with respect to the signature of the drawer, whether or not the drawer is also the drawee; or

(iii) to an acceptor of an item if the holder in due course took the item after the acceptance or obtained the acceptance without knowledge that the signature of the drawer was unauthorized; and

(3) the item has not been materially altered, except that this warranty is not given by any customer or collecting bank that is a holder in due course and acts in good faith:

(i) to the maker of a note;

(ii) to the drawer of a draft whether or not the drawer is also the drawee;

(iii) to the acceptor of an item with respect to an alteration made prior to the acceptance if the holder in due course took the item after the acceptance, even though the acceptance provided "payable as originally drawn" or equivalent terms; or

(iv) to the acceptor of an item with respect to an alteration made after the acceptance.

(b) Warranties to transferee and subsequent collecting bank.--Each customer and collecting bank who transfers an item and receives a settlement or other consideration for it warrants to his transferee and to any subsequent collecting bank who takes the item in good faith that:

(1) he has a good title to the item or is authorized to obtain payment or acceptance on behalf of one who has a good title and the transfer is otherwise rightful;

(2) all signatures are genuine or authorized;

(3) the item has not been materially altered;

(4) no defense of any party is good against him; and

(5) he has no knowledge of any insolvency proceeding instituted with respect to the maker or acceptor or the drawer of an unaccepted item.

In addition each customer and collecting bank so transferring an item and receiving a settlement or other consideration engages that upon dishonor and any necessary notice of dishonor and protest he will take up the item.

(c) Effect of absence of express guaranty or warranty.--The warranties and the engagement to honor set forth in subsections (a) and (b) arise notwithstanding the absence of indorsement or words of guaranty or warranty in the transfer or presentment and a collecting bank remains liable for their breach despite remittance to its transferor. Damages for breach of such warranties or engagement to honor shall not exceed the consideration received by the customer or collecting bank responsible plus finance charges and expenses related to the item, if any.

(d) Effect of delay in making claim for breach of warranty.--Unless a claim for breach of warranty under this section is made within a reasonable time after the person claiming learns of the breach, the person liable is discharged to the extent of any loss caused by the delay in making claim.]

§ 4207. Transfer warranties.

(a) General rule.--A customer or collecting bank that transfers an item and receives a settlement or other consideration warrants to the transferee and to any subsequent collecting bank that:

(1) the warrantor is a person entitled to enforce the item;

(2) all signatures on the item are authentic and authorized;

(3) the item has not been altered;

(4) the item is not subject to a defense or claim in recoupment (section 3305(a)) of any party that can be asserted against the warrantor; and

(5) the warrantor has no knowledge of any insolvency proceeding commenced with respect to the maker or acceptor or, in the case of an unaccepted draft, the drawer.

(b) Effect of dishonor.--If an item is dishonored, a customer or collecting bank transferring the item and receiving settlement or other consideration is obliged to pay the amount due on the item according to the terms of the item at the time it was transferred or, if the transfer was of an incomplete item, according to its terms when completed as stated in sections 3115 (relating to incomplete instrument) and 3407 (relating to alteration). The obligation of a transferor is owed to the transferee and to any subsequent collecting bank that takes the item in good faith. A transferor cannot disclaim its obligation under this subsection by an indorsement stating that it is made "without recourse" or otherwise disclaiming liability.

(c) Measure of damages for breach of warranty.--A person to whom the warranties under subsection (a) are made and who took the item in good faith may recover from the warrantor as damages for breach of warranty an amount equal to the loss suffered as a result of the breach, but not more than the amount of the item plus expenses and loss of interest incurred as a result of the breach.

(d) Prohibition against certain disclaimers and discharge.--The warranties stated in subsection (a) cannot be disclaimed with respect to checks. Unless notice of a claim for breach of warranty is given to the warrantor within 30 days after the claimant has reason to know of the breach and the identity of the warrantor, the warrantor is discharged to the extent of any loss caused by the delay in giving notice of the claim.

(e) Cause of action.--A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach.

Section 11. Title 13 is amended by adding sections to read:

§ 4208. Presentment warranties.

(a) General rule.--If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, the person obtaining payment or acceptance, at the time of presentment, and a previous transferor of the draft, at the time of transfer, warrant to the drawee that pays or accepts the draft in good faith that:

(1) the warrantor is, or was, at the time the warrantor transferred the draft, a person entitled to enforce the draft or authorized to obtain payment or acceptance of the draft on behalf of a person entitled to enforce the draft;

(2) the draft has not been altered; and

(3) the warrantor has no knowledge that the signature of the purported drawer of the draft is unauthorized.

(b) Measure of damages for breach of warranty.--A drawee making payment may recover from a warrantor damages for breach of warranty equal to the amount paid by the drawee less the amount the drawee received or is entitled to receive from the drawer because of the payment. In addition, the drawee is entitled to compensation for expenses and loss of interest resulting from the breach. The right of the drawee to recover damages under this subsection is not affected by any failure of the drawee to exercise ordinary care in making payment. If the drawee accepts the draft, breach of warranty is a defense to the obligation of the acceptor, and if the acceptor makes payment with respect to the draft, the acceptor is entitled to recover from a warrantor for breach of warranty the amounts stated in this subsection.

(c) Defense.--If a drawee asserts a claim for breach of warranty under subsection (a) based on an unauthorized indorsement of the draft or an alteration of the draft, the warrantor may defend by proving that the indorsement is effective under section 3404 (relating to imposters; fictitious payees) or 3405 (relating to employer's responsibility for fraudulent indorsement by employee) or the drawer is precluded under section 3406 (relating to negligence contributing to forged signature or alteration of instrument) or 4406 (relating to duty of customer to discover and report unauthorized signature or alteration) from asserting against the drawee the unauthorized indorsement or alteration.

(d) Other warranties.--If a dishonored draft is presented for payment to the drawer or an indorser or any other item is presented for payment to a party obliged to pay the item, and the item is paid, the person obtaining payment and a prior transferor of the item warrant to the person making payment in good faith that the warrantor is, or was, at the time the warrantor transferred the item, a person entitled to enforce the item or authorized to obtain payment on behalf of a person entitled to enforce the item. The person making payment may recover from any warrantor for breach of warranty an amount equal to the amount paid plus expenses and loss of interest resulting from the breach.

(e) Prohibition against certain disclaimers and discharge.--The warranties stated in subsections (a) and (d) cannot be disclaimed with respect to checks. Unless notice of a claim for breach of warranty is given to the warrantor within 30 days after the claimant has reason to know of the breach and the identity of the warrantor, the warrantor is discharged to the extent of any loss caused by the delay in giving notice of the claim.

(f) Cause of action.--A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach.

§ 4209. Encoding and retention warranties.

(a) Encoding warranty.--A person who encodes information on or with respect to an item after issue warrants to any subsequent collecting bank and to the payor bank or other payor that the information is correctly encoded. If the customer of a depositary bank encodes, that bank also makes the warranty.

(b) Retention warranty.--A person who undertakes to retain an item pursuant to an agreement for electronic presentment warrants to any subsequent collecting bank and to the payor bank or other payor that retention and presentment of the item comply with the agreement. If a customer of a depositary bank undertakes to retain an item, that bank also makes this warranty.

(c) Measure of damages for breach of warranty.--A person to whom warranties are made under this section and who took the item in good faith may recover from the warrantor as damages for breach of warranty an amount equal to the loss suffered as a result of the breach, plus expenses and loss of interest incurred as a result of the breach.

Section 12. Sections 4208, 4209, 4210 and 4211 of Title 13 are amended to read:

§ [4208] 4210 . Security interest of collecting bank in items, accompanying documents and proceeds.

(a) General rule.--A collecting bank has a security interest in an item and any accompanying documents or the proceeds of either:

(1) in case of an item deposited in an account, to the extent to which credit given for the item has been withdrawn or applied;

(2) in case of an item for which it has given credit available for withdrawal as of right, to the extent of the credit given , whether or not the credit is drawn upon [and whether or not] or there is a right of charge-back; or

(3) if it makes an advance on or against the item.

(b) Partial withdrawal of credit given for several items.--[When credit which has been] If credit given for several items received at one time or pursuant to a single agreement is withdrawn or applied in part , the security interest remains upon all the items, any accompanying documents or the proceeds of either. For the purpose of this section, credits first given are first withdrawn.

(c) Satisfaction and continuation of security interest.--Receipt by a collecting bank of a final settlement for an item is a realization on its security interest in the item, accompanying documents and proceeds. [To the extent and so] So long as the bank does not receive final settlement for the item or give up possession of the item or accompanying documents for purposes other than collection, the security interest continues to that extent and is subject to [the provisions of] Division 9 (relating to secured transactions) [except that] , but :

(1) no security agreement is necessary to make the security interest enforceable (section 9203(a)[(2)] (1) (relating to attachment and enforceability of security interest; proceeds, formal requisites));

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

(3) the security interest has priority over conflicting perfected security interests in the item, accompanying documents or proceeds.

§ [4209] 4211 . When bank gives value for purposes of holder in due course.

For purposes of determining its status as a holder in due course, [the] a bank has given value to the extent [that] it has a security interest in an item [provided that] , if the bank otherwise complies with the requirements of section 3302 (relating to holder in due course).

§ [4210] 4212 . Presentment by notice of item not payable by, through or at a bank; liability of [secondary parties] drawer or indorser .

(a) Presentment by notice.--Unless otherwise instructed, a collecting bank may present an item not payable by, through or at a bank by sending to the party to accept or pay a written notice that the bank holds the item for acceptance or payment. The notice must be sent in time to be received on or before the day when presentment is due and the bank must meet any requirement of the party to accept or pay under section [3505 (relating to rights of party to whom presentment is made)] 3501 (relating to presentment) by the close of the next banking day of the bank after it knows of the requirement.

(b) Dishonor and notice to [secondary party.--Where] drawer or indorser.--If presentment is made by notice and [neither honor nor] payment, acceptance or request for compliance with a requirement under section [3505 is] 3501 is not received by the close of business on the day after maturity or , in the case of demand items , by the close of business on the third banking day after notice was sent, the presenting bank may treat the item as dishonored and charge any [secondary party] drawer or indorser by sending [him] it notice of the facts.

[§ 4211. Media of remittance; provisional and final settlement in remittance cases.

(a) Media of remittance acceptable by collecting bank.--A collecting bank may take in settlement of an item:

(1) a check of the remitting bank or of another bank on any bank except the remitting bank;

(2) a cashier's check or similar primary obligation of a remitting bank which is a member of or clears through a member of the same clearing house or group as the collecting bank;

(3) appropriate authority to charge an account of the remitting bank or of another bank with the collecting bank; or

(4) if the item is drawn upon or payable by a person other than a bank, a cashier's check, certified check or other bank check or obligation.

(b) Liability of bank on dishonor of remittance.--If before its midnight deadline the collecting bank properly dishonors a remittance check or authorization to charge on itself or presents or forwards for collection a remittance instrument of or on another bank which is of a kind approved by subsection (a) or has not been authorized by it, the collecting bank is not liable to prior parties in the event of the dishonor of such check, instrument or authorization.

(c) Time of final settlement of item.--A settlement for an item by means of a remittance instrument or authorization to charge is or becomes a final settlement as to both the person making and the person receiving the settlement:

(1) if the remittance instrument or authorization to charge is of a kind approved by subsection (a) or has not been authorized by the person receiving the settlement and in either case the person receiving the settlement acts seasonably before its midnight deadline in presenting, forwarding for collection or paying the instrument or authorization, at the time the remittance instrument or authorization is finally paid by the payor by which it is payable;

(2) if the person receiving the settlement has authorized remittance by a nonbank check or obligation or by a cashier's check or similar primary obligation of or a check upon the payor or other remitting bank which is not of a kind approved by subsection (a)(2), at the time of the receipt of such remittance check or obligation; or

(3) if in a case not covered by paragraph (1) or (2) the person receiving the settlement fails to seasonably present, forward for collection, pay or return a remittance instrument or authorization to it to charge before its midnight deadline, at such midnight deadline.]

Section 13. Title 13 is amended by adding a section to read:

§ 4213. Medium and time of settlement by bank.

(a) Certain rules regarding settlement by bank.--With respect to settlement by a bank, the medium and time of settlement may be prescribed by Federal Reserve regulations or circulars, clearinghouse rules, and the like, or agreement. In the absence of such prescription:

(1) the medium of settlement is cash or credit to an account in a Federal Reserve bank of or specified by the person to receive settlement; and

(2) the time of settlement is:

(i) with respect to tender of settlement by cash, a cashier's check or teller's check, when the cash or check is sent or delivered;

(ii) with respect to tender of settlement by credit in an account in a Federal Reserve bank, when the credit is made;

(iii) with respect to tender of settlement by a credit or debit to an account in a bank, when the credit or debit is made or, in the case of tender of settlement by authority to charge an account, when the authority is sent or delivered; or

(iv) with respect to tender of settlement by a funds transfer, when payment is made pursuant to section 4A406(a) (relating to payment by originator to beneficiary; discharge of underlying obligation) to the person receiving settlement.

(b) When settlement occurs under certain circumstances not covered by subsection (a).--If the tender of settlement is not by a medium authorized by subsection (a) or the time of settlement is not fixed by subsection (a), no settlement occurs until the tender of settlement is accepted by the person receiving settlement.

(c) Settlement by cashier's check or teller's check.--If settlement for an item is made by cashier's check or teller's check and the person receiving settlement, before its midnight deadline:

(1) presents or forwards the check for collection, settlement is final when the check is finally paid; or

(2) fails to present or forward the check for collection, settlement is final at the midnight deadline of the person receiving settlement.

(d) Settlement by tender of authority to charge account of bank making settlement in bank receiving settlement.--If settlement for an item is made by giving authority to charge the account of the bank giving settlement in the bank receiving settlement, settlement is final when the charge is made by the bank receiving settlement if there are funds available in the account for the amount of the item.

Section 14. Sections 4212, 4213, 4214, 4301, 4302, 4303, 4401, 4402, 4403, 4405, 4406, 4407, 4501, 4502, 4503 and 4504 of Title 13 are amended to read:

§ [4212] 4214 . Right of charge-back or refund ; liability of collecting bank; return of item .

(a) Right of collecting bank to charge-back or refund.--If a collecting bank has made provisional settlement with its customer for an item and [itself] fails by reason of dishonor, suspension of payments by a bank , or otherwise to receive [a] settlement for the item which is or becomes final, the bank may revoke the settlement given by it, charge back the amount of any credit given for the item to the account of its customer , or obtain refund from its customer , whether or not it is able to return the item , if by its midnight deadline or within a longer reasonable time after it learns the facts it returns the item or sends notification of the facts. If the return or notice is delayed beyond the bank's midnight deadline or a longer reasonable time after it learns the facts, the bank may revoke the settlement, charge back the credit or obtain refund from its customer, but it is liable for any loss resulting from the delay. These rights to revoke, charge-back and obtain refund terminate if and when a settlement for the item received by the bank is or becomes final [(sections 4211(c) and 4213(b) and (c))].

(b) [Return of unpaid item to depositary bank.--Within the time and manner prescribed by this section and section 4301 (relating to recovery of payment by return of items), an intermediary or payor bank, as the case may be, may return an unpaid item directly to the depositary bank and may send for collection a draft on the depositary bank and obtain reimbursement. In such case, if the depositary bank has received provisional settlement for the item, it must reimburse the bank drawing the draft and any provisional credits for the item between banks and shall become and remain final.] Return of item by collecting bank.--A collecting bank returns an item when it is sent or delivered to the bank's customer or transferor or pursuant to its instructions.

(c) Right of depositary-payor bank to charge-back or refund.--A depositary bank [which] that is also the payor may charge-back the amount of an item to the account of its customer or obtain refund in accordance with the section governing return of an item received by a payor bank for credit on its books (section 4301).

(d) Right of charge-back unaffected in certain cases.--The right to charge-back is not affected by:

(1) [prior use of the] previous use of a credit given for the item; or

(2) failure by any bank to exercise ordinary care with respect to the item [but any] , but a bank so failing remains liable.

(e) Effect of failure to charge-back or claim refund.--A failure to charge-back or claim refund does not affect other rights of the bank against the customer or any other party.

(f) Credit in dollars for item payable in foreign [currency] money .--If credit is given in dollars as the equivalent of the value of an item payable in [a foreign currency] foreign money, the dollar amount of any charge-back or refund [shall] must be calculated on the basis of the [buying sight] bank-offered spot rate for the foreign [currency] money prevailing on the day when the person entitled to the charge-back or refund learns that it will not receive payment in ordinary course.

§ [4213] 4215 . Final payment of item by payor bank; when provisional debits and credits become final; when certain credits become available for withdrawal.

(a) When item is finally paid by payor bank.--An item is finally paid by a payor bank when the bank has first done any of the following[, whichever happens first]:

(1) Paid the item in cash.

(2) Settled for the item without [reserving] having a right to revoke the settlement [and without having such right] under statute, [clearing house rule] clearinghouse rule or agreement.

(3) [Completed the process of posting the item to the indicated account of the drawer, maker or other person to be charged therewith.

(4)] Made a provisional settlement for the item and failed to revoke the settlement in the time and manner permitted by statute, [clearing house] clearinghouse rule or agreement.

[Upon a final payment under paragraph (2), (3) or (4), the payor bank shall be accountable for the amount of the item.]

(b) Effect of provisional settlement which does not become final.--If provisional settlement for an item does not become final, the item is not finally paid.

[(b)] (c) When provisional debits and credits become final.--If provisional settlement for an item between the presenting and payor banks is made through a [clearing house] clearinghouse or by debits or credits in an account between them, then to the extent that provisional debits or credits for the item are entered in accounts between the presenting and payor banks or between the presenting and successive prior collecting banks seriatim, they become final upon final payment of the item by the payor bank.

[(c)] (d) Accountability of collecting bank to customer upon final settlement.--If a collecting bank receives a settlement for an item which is or becomes final [(sections 4211(c) and 4213(b))] , the bank is accountable to its customer for the amount of the item and any provisional credit given for the item in an account with its customer becomes final.

[(d)] (e) When credit becomes available for withdrawal.--Subject to applicable law stating a time for availability of funds and any right of the bank to apply the credit to an obligation of the customer, credit given by a bank for an item in [an account with its customer] a customer's account becomes available for withdrawal as of right:

(1) [in any case where] if the bank has received a provisional settlement for the item, when [such] the settlement becomes final and the bank has had a reasonable time to [learn that the settlement is final] receive return of the item and the item has not been received within that time ; and

(2) [in any case where] if the bank is both [a] the depositary bank and [a] the payor bank and the item is finally paid, at the opening of the second banking day of the bank following receipt of the item.

[(e)] (f) When deposit of money becomes available for withdrawal.--[A deposit of money in a bank is final when made but, subject to] Subject to applicable law stating a time for availability of funds and any right of [the] a bank to apply [the] a deposit to an obligation of the [customer, the deposit] depositor, a deposit of money becomes available for withdrawal as of right at the opening of the next banking day of the bank [following] after receipt of the deposit.

§ [4214] 4216 . Insolvency and preference.

(a) Return of unpaid item by agent of closed bank.--[Any item in or coming] If an item is in or comes into the possession of a payor or collecting bank [which] that suspends payment and [which item is not] the item has not been finally paid [shall] , the item must be returned by the receiver, trustee or agent in charge of the closed bank to the presenting bank or the customer of the closed bank.

(b) Preferred claim against payor bank by owner of unsettled item.--If a payor bank finally pays an item and suspends payments without making a settlement for the item with its customer or the presenting bank which settlement is or becomes final, the owner of the item has preferred claim against the payor bank.

(c) Finality of provisional settlement by payor or collecting bank unaffected.--If a payor bank gives or a collecting bank gives or receives a provisional settlement for an item and thereafter suspends payments, the suspension does not prevent or interfere with the [settlement] settlement's becoming final if [such] the finality occurs automatically upon the lapse of certain time or the happening of certain events [(sections 4211(c) and 4213(a)(4), (b) and (c))].

(d) Preferred claim against collecting bank by owner of unsettled item.--If a collecting bank receives from subsequent parties settlement for an item , which settlement is or becomes final and the bank suspends payments without making a settlement for the item with its customer which settlement is or becomes final, the owner of the item has a preferred claim against [such] the collecting bank.

§ 4301. Deferred posting; recovery of payment by return of items; time of dishonor ; return of items by payor bank .

(a) Return by payor bank of item provisionally settled.--[Where an authorized settlement] If a payor bank settles for a demand item [(other than a documentary draft) received by a payor bank] other than a documentary draft presented otherwise than for immediate payment over the counter [has been made] before midnight of the banking day of receipt , the payor bank may revoke the settlement and recover [any payment if] the settlement if, before it has made final payment [(section 4213(a))] and before its midnight deadline , it:

(1) returns the item; or

(2) sends written notice of dishonor or nonpayment if the item is [held for protest or is otherwise] unavailable for return.

(b) Time for return of provisionally settled item.--If a demand item is received by a payor bank for credit on its books , it may return [such] the item or send notice of dishonor and may revoke any credit given or recover the amount thereof withdrawn by its customer, if it acts within the time limit and in the manner specified in subsection (a).

(c) Time when item is dishonored.--Unless previous notice of dishonor has been sent , an item is dishonored at the time when for purposes of dishonor it is returned or notice sent in accordance with this section.

(d) Acts constituting return of item.--An item is returned:

(1) as to an item [received] presented through a [clearing house] clearinghouse , when it is delivered to the presenting or last collecting bank or to the [clearing house] clearinghouse or is sent or delivered in accordance with [its] clearinghouse rules; or

(2) in all other cases, when it is sent or delivered to the bank's customer or transferor or pursuant to his instructions.

§ 4302. Responsibility of payor bank for late return of item.

[In the absence of a valid defense such as breach of a presentment warranty (section 4207(a)), settlement effected or the like, if] (a) General rule.--If an item is presented [on] to and received by a payor bank the bank is accountable for the amount of:

(1) a demand item , other than a documentary draft , whether properly payable or not , if the bank, in any case [where] in which it is not also the depositary bank, retains the item beyond midnight of the banking day of receipt without settling for it or, [regardless of] whether or not it is also the depositary bank, does not pay or return the item or send notice of dishonor until after its midnight deadline; or

(2) any other properly payable item unless , within the time allowed for acceptance or payment of that item , the bank either accepts or pays the item or returns it and accompanying documents.

(b) Liability of payor bank subject to certain defenses.--The liability of a payor bank to pay an item pursuant to subsection (a) is subject to defenses based on breach of a presentment warranty (section 4208) or proof that the person seeking enforcement of the liability presented or transferred the item for the purpose of defrauding the payor bank.

§ 4303. When items subject to notice, [stop-order] stop-payment order , legal process or set-off; order in which items may be charged or certified.

(a) When items subject to knowledge, notice, [stop-order] stop-payment order , legal process or set-off.--Any knowledge, notice or [stop-order] stop-payment order received by, legal process served upon or set-off exercised by a payor bank[, whether or not effective under other rules of law] comes too late to terminate, suspend or modify the right or duty of the bank to pay an item or to charge the account of its customer for the item[, comes too late to so terminate, suspend or modify such right or duty] if the knowledge, notice, [stop-order] stop-payment order or legal process is received or served and a reasonable time for the bank to act thereon expires or the set-off is exercised after the [bank has done any] earliest of the following:

(1) [Accepted or certified] The bank accepts or certifies the item.

(2) [Paid] The bank pays the item in cash.

(3) [Settled] The bank settles for the item without [reserving] having a right to revoke the settlement [and without having such right] under statute, [clearing house] clearinghouse rule or agreement.

(4) [Completed the process of posting the item to the indicated account of the drawer, maker or other person to be charged therewith or otherwise has evidenced by examination of such indicated account and by action its decision to pay the item.

(5) Become] The bank becomes accountable for the amount of the item under [section 4213(a)(4) (relating to final payment of item by payor bank) and] section 4302 (relating to responsibility of payor bank for late return of item).

(5) With respect to checks, a cutoff hour no earlier than one hour after the opening of the next banking day after the banking day on which the bank received the check and no later than the close of that next banking day or, if no cutoff hour is fixed, the close of the next banking day after the banking day on which the bank received the check.

(b) Order in which items may be accepted, paid, certified or charged.--Subject to [the provisions of] subsection (a) , items may be accepted, paid, certified or charged to the indicated account of its customer in any order [convenient to the bank].

§ 4401. When bank may charge account of customer.

(a) General rule.--[As against its customer, a] A bank may charge against [his account any item which is otherwise] the account of a customer an item that is properly payable from that account even though the charge creates an overdraft. An item is properly payable if it is authorized by the customer and is in accordance with any agreement between the customer and the bank.

(b) Limitation on customer liability.--A customer is not liable for the amount of an overdraft if the customer neither signed the item nor benefited from the proceeds of the item.

(c) Postdated checks.--A bank may charge against the account of a customer a check that is otherwise properly payable from the account, even though payment was made before the date of the check, unless the customer has given notice to the bank of the postdating describing the check with reasonable certainty. The notice is effective for the period stated in section 4403(b) (relating to right of customer to stop payment; burden of proof of loss) for stop-payment orders and must be received at such time and in such manner as to afford the bank a reasonable opportunity to act on it before the bank takes any action with respect to the check described in section 4303 (relating to when items subject to notice, stop-payment order, legal process or set-off; order in which items may be charged or certified). If a bank charges against the account of a customer a check before the date stated in the notice of postdating, the bank is liable for damages for the loss resulting from its act. The loss may include damages for dishonor of subsequent items under section 4402 (relating to liability of bank to customer for wrongful dishonor; time of determining insufficiency of account).

[(b)] (d) Payment to holder on altered or completed item.--A bank [which] that in good faith makes payment to a holder may charge the indicated account of its customer according to:

(1) the original [tenor of his] terms of the altered item; or

(2) the [tenor of his] terms of the completed item, even though the bank knows the item has been completed unless the bank has notice that the completion was improper.

§ 4402. Liability of bank to customer for wrongful dishonor ; time of determining insufficiency of account .

(a) Wrongful dishonor.--Except as otherwise provided in this division, a payor bank wrongfully dishonors an item if it dishonors an item that is properly payable, but a bank may dishonor an item that would create an overdraft unless it has agreed to pay the overdraft.

(b) Liability of bank.-- A payor bank is liable to its customer for damages proximately caused by the wrongful dishonor of an item. [When the dishonor occurs through mistake liability] Liability is limited to actual damages proved[. If so proximately caused and proved damages] and may include damages for an arrest or prosecution of the customer or other consequential damages. Whether any consequential damages are proximately caused by the wrongful dishonor is a question of fact to be determined in each case.

(c) Determination of bank.--A payor bank's determination of the customer's account balance on which a decision to dishonor for insufficiency of available funds is based may be made at any time between the time the item is received by the payor bank and the time that the payor bank returns the item or gives notice in lieu of return, and no more than one determination need be made. If, at the election of the payor bank, a subsequent balance determination is made for the purpose of reevaluating the bank's decision to dishonor the item, the account balance at that time is determinative of whether a dishonor for insufficiency of available funds is wrongful.

§ 4403. Right of customer to stop payment; burden of proof of loss.

(a) Right of customer to stop payment.--A customer [may by order to his bank stop payment of any item payable for his account but the order must be] or any person authorized to draw on the account if there is more than one person may stop payment of any item drawn on the customer's account or close the account by an order to the bank describing the item or account with reasonable certainty received at [such] a time and in [such manner as to afford] a manner that affords the bank a reasonable opportunity to act on it [prior to] before any action by the bank with respect to the item described in section 4303 (relating to when items subject to notice, [stop-order] stop-payment order , legal process or set-off[).] ; order in which items may be charged or certified). If the signature of more than one person is required to draw on an account, any of these persons may stop payment or close the account.

(b) Duration of [stop payment] stop-payment orders.--[An oral order is binding upon the bank only for 14 calendar days unless confirmed in writing within that period. A written order is effective for only six months unless renewed in writing.] A stop-payment order is effective for six months, but it lapses after 14 calendar days if the original order was oral and was not confirmed in writing within that period. A stop-payment order may be renewed for additional six-month periods by a writing given to the bank within a period during which the stop-payment order is effective.

(c) Burden of proof of loss.--The burden of establishing the fact and amount of loss resulting from the payment of an item contrary to a [binding stop payment order] stop-payment order or order to close an account is on the customer. The loss from payment of an item contrary to a stop-payment order may include damages for dishonor of subsequent items under section 4402 (relating to liability of bank to customer for wrongful dishonor; time of determining insufficiency of account).

§ 4405. Death or incompetence of customer.

(a) Authority of bank unaffected in absence of knowledge.--The authority of a payor or collecting bank to accept, pay or collect an item or to account for proceeds of its collection , if otherwise effective , is not rendered ineffective by incompetence of a customer of either bank existing at the time the item is issued or its collection is undertaken if the bank does not know of an adjudication of incompetence. Neither death nor incompetence of a customer revokes [such] the authority to accept, pay, collect or account until the bank knows of the fact of death or of an adjudication of incompetence and has reasonable opportunity to act on it.

(b) Limited authority of bank following knowledge.--Even with knowledge , a bank may for ten days after the date of death pay or certify checks drawn on or [prior to] before that date unless ordered to stop payment by a person claiming an interest in the account.

§ 4406. Duty of customer to discover and report unauthorized signature or alteration.

(a) [General rule.--When a bank sends to its customer a statement of account accompanied by items paid in good faith in support of the debit entries or holds the statement and items pursuant to a request or instructions of its customer or otherwise in a reasonable manner makes the statement and items available to the customer, the customer must exercise reasonable care and promptness to examine the statement and items to discover his unauthorized signature or any alteration on an item and must notify the bank promptly after discovery thereof.] Statement of account.--A bank that sends or makes available to a customer a statement of account showing payment of items for the account shall either return or make available to the customer the items paid or provide information in the statement of account sufficient to allow the customer reasonably to identify the items paid. The statement of account provides sufficient information if the item is described by item number, amount and date of payment.

(b) Retention of items.--If the items are not returned to the customer, the person retaining the items shall either retain the items or, if the items are destroyed, maintain the capacity to furnish legible copies of the items until the expiration of seven years after receipt of the items. A customer may request an item from the bank that paid the item, and that bank must provide in a reasonable time either the item or, if the item has been destroyed or is not otherwise obtainable, a legible copy of the item.

(c) Duty of customer.--If a bank sends or makes available a statement of account or items pursuant to subsection (a), the customer must exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized because of an alteration of an item or because a purported signature by or on behalf of the customer was not authorized. If, based on the statement or items provided, the customer should reasonably have discovered the unauthorized payment, the customer must promptly notify the bank of the relevant facts.

[(b)] (d) Effect of failure to report unauthorized signature or alteration.--If the bank [establishes] proves that the customer failed , with respect to an item , to comply with the duties imposed on the customer by subsection [(a)] (c), the customer is precluded from asserting against the bank:

(1) [his] the customer's unauthorized signature or any alteration on the item if the bank also [establishes] proves that it suffered a loss by reason of [such] the failure; and

(2) [an] the customer's unauthorized signature or alteration by the same wrongdoer on any other item paid in good faith by the bank [after the first item and statement was available to the customer for a reasonable period not exceeding 14 calendar days and before the bank receives notification from the customer of any such unauthorized signature or alteration.] if the payment was made before the bank received notice from the customer of the unauthorized signature or alteration and after the customer had been afforded a reasonable period of time, not exceeding 30 days, in which to examine the item or statement of account and notify the bank.

[(c) Nonliability of bank affected by lack of ordinary care.--The preclusion under subsection (b) does not apply if the customer establishes lack of ordinary care on the part of the bank in paying the item.]

(e) Allocation of loss.--If subsection (d) applies and the customer proves that the bank failed to exercise ordinary care in paying the item and that the failure substantially contributed to loss, the loss is allocated between the customer precluded and the bank asserting the preclusion according to the extent to which the failure of the customer to comply with subsection (c) and the failure of the bank to exercise ordinary care contributed to the loss. If the customer proves that the bank did not pay the item in good faith, the preclusion under subsection (d) does not apply.

[(d)] (f) Statutes of limitations applicable to customer.--Without regard to care or lack of care of either the customer or the bank , a customer who does not within one year [from the time] after the statement [and] or items are made available to the customer (subsection (a)) discover and report [his] the customer's unauthorized signature on or any alteration [on the face or back of the item or does not within three years from that time discover and report any unauthorized indorsement] on the item is precluded from asserting against the bank [such] the unauthorized signature [or indorsement or such] or alteration. If there is a preclusion under this subsection, the payor bank may not recover for breach of warranty under section 4208 (relating to presentment warranties) with respect to the unauthorized signature or alteration to which the preclusion applies.

[(e) Effect of waiver of valid defense of payor bank.--If under this section a payor bank has a valid defense against a claim of a customer upon or resulting from payment of an item and waives or fails upon request to assert the defense the bank may not assert against any collecting bank or other prior party presenting or transferring the item a claim based upon the unauthorized signature or alteration giving rise to the claim of the customer.]

§ 4407. Right of payor bank to subrogation on improper payment.

If a payor bank has paid an item over the [stop payment] order of the drawer or maker to stop payment, or after an account has been closed, or otherwise under circumstances giving a basis for objection by the drawer or maker, to prevent unjust enrichment and only to the extent necessary to prevent loss to the bank by reason of its payment of the item, the payor bank [shall be] is subrogated to the rights:

(1) of any holder in due course on the item against the drawer or maker;

(2) of the payee or any other holder of the item against the drawer or maker either on the item or under the transaction out of which the item arose; and

(3) of the drawer or maker against the payee or any other holder of the item with respect to the transaction out of which the item arose.

§ 4501. Handling of documentary drafts; duty to send for presentment and to notify customer of dishonor.

A bank [which] that takes a documentary draft for collection [must] shall present or send the draft and accompanying documents for presentment and , upon learning that the draft has not been paid or accepted in due course [must] , shall seasonably notify its customer of [such] the fact even though it may have discounted or bought the draft or extended credit available for withdrawal as of right.

§ 4502. Presentment of "on arrival" drafts.

[When] If a draft or the relevant instructions require presentment "on arrival", "when goods arrive" or the like, the collecting bank need not present until in its judgment a reasonable time for arrival of the goods has expired. Refusal to pay or accept because the goods have not arrived is not dishonor; the bank must notify its transferor of [such] the refusal but need not present the draft again until it is instructed to do so or learns of the arrival of the goods.

§ 4503. Responsibility of presenting bank for documents and goods; report of reasons for dishonor; referee in case of need.

Unless otherwise instructed and except as provided in Division 5 (relating to letters of credit) , a bank presenting a documentary draft:

(1) must deliver the documents to the drawee on acceptance of the draft if it is payable more than three days after presentment; otherwise, only on payment; and

(2) upon dishonor, either in the case of presentment for acceptance or presentment for payment, may seek and follow instructions from any referee in case of need designated in the draft or , if the presenting bank does not choose to utilize [his services] the referee's services, it must use diligence and good faith to ascertain the reason for dishonor, must notify its transferor of the dishonor and of the results of its effort to ascertain the reasons therefor and must request instructions.

[But] However, the presenting bank is under no obligation with respect to goods represented by the documents except to follow any reasonable instructions seasonably received; it has a right to reimbursement for any expense incurred in following instructions and to prepayment of or indemnity for [such] those expenses.

§ 4504. Privilege of presenting bank to deal with goods; security interest for expenses.

(a) Dealing with goods following dishonor of documentary draft.--A presenting bank [which] that , following the dishonor of a documentary draft, has seasonably requested instructions but does not receive them within a reasonable time may store, sell[,] or otherwise deal with the goods in any reasonable manner.

(b) Security interest for expenses.--For its reasonable expenses incurred by action under subsection (a) , the presenting bank has a lien upon the goods or their proceeds, which may be foreclosed in the same manner as an unpaid lien of a seller.

Section 15. Title 13 is amended by adding a division to read:

DIVISION 4A

FUNDS TRANSFERS

Chapter

4A1. Subject Matter and Definitions

4A2. Issue and Acceptance of Payment Order

4A3. Execution of Sender's Payment Order by Receiving Bank

4A4. Payment

4A5. Miscellaneous Provisions

Section 16. Sections 5101, 5103(c), 5111(a) and 5114(b) introductory paragraph and (1) of Title 13 are amended to read:

§ 5101. Short title of division.

This division shall be known and may be cited as the ["]Uniform Commercial Code[--] , Article 5, Letters of Credit.["]

§ 5103. Definitions and index of definitions.

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(c) Index of definitions in other divisions.--Definitions in other divisions applying to this division and the sections in which they appear are:

"Accept" or "acceptance." [Section 3410] Section 3409 .

"Contract for sale." Section 2106.

"Draft." Section 3104.

"Holder in due course." Section 3302.

"Midnight deadline." Section 4104.

"Security." Section 8102.

---

§ 5111. Warranties on transfer and presentment.

(a) Warranties of beneficiary.--Unless otherwise agreed the beneficiary by transferring or presenting a documentary draft or demand for payment warrants to all interested parties that the necessary conditions of the credit have been complied with. This is in addition to any warranties arising under Divisions 3 (relating to [commercial paper] negotiable instruments ), 4 (relating to bank deposits and collections), 7 (relating to warehouse receipts, bills of lading and other documents of title) and 8 (relating to investment securities).

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§ 5114. Duty and privilege of issuer to honor; right to reimbursement.

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(b) Nonconforming document or fraud.--Unless otherwise agreed when documents appear on their face to comply with the terms of a credit but a required document does not in fact conform to the warranties made on negotiation or transfer of a document of title (section 7507) or of a certificated security (section 8306) or is forged or fraudulent or there is fraud in the transaction:

(1) the issuer must honor the draft or demand for payment if honor is demanded by a negotiating bank or other holder of the draft or demand which has taken the draft or demand under the credit and under circumstances which would make it a holder in due course (section 3302) and in an appropriate case would make it a person to whom a document of title has been duly negotiated (section 7502) or a bona fide purchaser of a certificated security (section 8302); and

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Section 17. Division 6 of Title 13 is repealed.

Section 18. Sections 7101, 8101, 8102, 8103, 8104, 8105, 8106 and 8107 of Title 13 are amended to read:

§ 7101. Short title of division.

This division shall be known and may be cited as the ["]Uniform Commercial Code[--] , Article 7, Documents of Title.["]

§ 8101. Short title of division.

This division shall be known and may be cited as the ["]Uniform Commercial Code[--] , Article 8, Investment Securities.["]

§ 8102. Definitions and index of definitions.

(a) Definitions.--The following words and phrases when used in this division shall have, unless the context clearly indicates otherwise, the meanings given to them in this subsection:

"Certificated security."

(1) A share, participation or other interest in property of or an enterprise of the issuer or an obligation of the issuer which is:

(i) represented by an instrument issued in bearer or registered form;

(ii) of a type commonly dealt in on securities exchanges or markets or commonly recognized in any area in which it is issued or dealt in as a medium for investment; and

(iii) either one of a class or series or by its terms divisible into a class or series of shares, participations, interests or obligations.

(2) If a partnership interest in a limited partnership is evidenced by a certificate of partnership interest, the certificate is a certificated security.

"Clearing corporation." A corporation registered as a "clearing agency" under the Federal securities laws or a corporation :

(1) at least 90% of [the] whose capital stock [of which] is held by or for one or more [persons (other than individuals)] organizations, none of which, other than a national securities exchange or association, holds in excess of 20% of the capital stock of the corporation, and each of [whom] which is :

(i) [is] subject to supervision or regulation pursuant to the provisions of Federal or State banking laws or State insurance laws;

(ii) [is] a broker or dealer or investment company registered under the [Securities Exchange Act of 1934 or the Investment Company Act of 1940] Federal securities laws ; or

(iii) [is] a national securities exchange or association registered under [a statute of the United States such as the Securities Exchange Act of 1934] the Federal securities laws ;

and [none of whom, other than a national securities exchange or association, holds in excess of 20% of the capital stock of such corporation; and]

(2) any remaining capital stock of which is held by individuals who have purchased [such capital stock] it at or prior to the time of their taking office as directors of [such] the corporation and who have purchased only so much of such capital stock as [may be] is necessary to permit them to qualify as [such] directors.

"Custodian bank." [Any] A bank or trust company [which] that is supervised and examined by State or Federal authority having supervision over banks and [which] is acting as custodian for a clearing corporation.

["Security."

(1) A "security" is an instrument which:

(i) is issued in bearer or registered form;

(ii) is of a type commonly dealt in upon securities exchanges or markets or commonly recognized in any area in which it is issued or dealt in as a medium for investment;

(iii) is either one of a class or series or by its terms is divisible into a class or series of instruments; and

(iv) evidences a share, participation or other interest in property or in an enterprise or evidences an obligation of the issuer.]

"Security." A security is either a certificated or an uncertificated security:

(1) If a security is certificated, the terms "security" and "certificated security" may mean either the intangible interest, the instrument representing that interest, or both, as the context requires.

(2) A writing [which] that is a certificated security is governed by this division and not by Division 3 (relating to [commercial paper] negotiable instruments ) even though it also meets the requirements of that division. This division does not apply to money.

(3) If a certificated security has been retained by or surrendered to the issuer or its transfer agent for reasons other than registration of transfer, other temporary purpose, payment, exchange or acquisition by the issuer, that security shall be treated as an uncertificated security for purposes of this division.

(4) A certificated security is in "registered form" [when] if:

(i) it specifies a person entitled to the security or to the rights it [evidences] represents; and [when]

(ii) its transfer may be registered upon books maintained for that purpose by or on behalf of [an] the issuer or the security so states.

[(4)] (5) A certificated security is in "bearer form" [when] if it runs to bearer according to its terms and not by reason of any indorsement.

"Subsequent purchaser." A person who takes other than by original issue.

"Uncertificated security."

(1) A share, participation or other interest in property or an enterprise of the issuer or an obligation of the issuer which is:

(i) not represented by an instrument and the transfer of which is registered upon books maintained for that purpose by or on behalf of the issuer;

(ii) of a type commonly dealt in on securities exchanges or markets; and

(iii) either one of a class or series or by its terms divisible into a class or series of shares, participations, interests or obligations.

(2) Any partnership interest in a limited partnership which is not evidenced by a certificated security is an uncertificated security only if the partnership interest is approved for trading on a national securities exchange registered under the Federal securities laws or for quotation in the automated quotation system of a national securities association registered under the Federal securities laws.

(b) Index of other definitions.--Other definitions applying to this division or to specified chapters thereof and the sections in which they appear are:

"Adverse claim." Section [8301] 8302 .

"Bona fide purchaser." Section 8302.

"Broker." Section 8303.

"Debtor." Section 9105.

"Financial intermediary." Section 8313.

"Guarantee of the signature." Section 8402.

"Initial transaction statement." Section 8408.

"Instruction." Section 8308.

"Intermediary bank." Section 4105.

"Issuer." Section 8201.

"Overissue." Section 8104.

"Secured party." Section 9105.

"Security agreement." Section 9105.

(c) Applicability of general definitions and principles.--In addition Division 1 (relating to general provisions) contains general definitions and principles of construction and interpretation applicable throughout this division.

§ 8103. Lien of issuer.

A lien upon a security in favor of an issuer thereof is valid against a purchaser only if :

(1) the security is certificated and the right of the issuer to [such] the lien is noted conspicuously [on the security.] thereon; or

(2) the security is uncertificated and a notation of the right of the issuer to the lien is contained in the initial transaction statement sent to the purchaser or, if his interest is transferred to him other than by registration of transfer, pledge or release, the initial transaction statement sent to the registered owner or the registered pledgee.

§ 8104. Effect of overissue; "overissue."

(a) General rule.--The provisions of this division which validate a security or compel its issue or reissue do not apply to the extent that validation, issue or reissue would result in overissue; but , if :

(1) [if] an identical security which does not constitute an overissue is reasonably available for purchase, the person entitled to issue or validation may compel the issuer to purchase [and deliver such a] the security [to] for him and either to deliver a certificated security or to register the transfer of an uncertificated security to him against surrender of [the] any certificated security[, if any, which] he holds; or

(2) [if] a security is not so available for purchase, the person entitled to issue or validation may recover from the issuer the price he or the last purchaser for value paid for it with interest from the date of his demand.

(b) Definition of "overissue".--"Overissue" means the issue of securities in excess of the amount [which] the issuer has corporate power to issue.

§ 8105. [Securities] Certificated securities negotiable; statements and instructions not negotiable; presumptions.

(a) [Securities] Certificated securities negotiable.--[Securities] Certificated securities governed by this division are negotiable instruments.

(b) Statements not negotiable.--Statements (section 8408), notices or the like sent by the issuer of uncertificated securities and instructions (section 8308) are neither negotiable instruments nor certificated securities.

(c) Presumptions and burden of proof.--In any action on a security:

(1) unless specifically denied in the pleadings, each signature on [the] a certificated security [or] , in a necessary indorsement , on an initial transaction statement or on an instruction is admitted;

(2) [when] if the effectiveness of a signature is put in issue , the burden of establishing it is on the party claiming under the signature , but the signature is presumed to be genuine or authorized;

(3) [when] if signatures on a certificated security are admitted or established , production of the [instrument] security entitles a holder to recover on it unless the defendant establishes a defense or a defect going to the validity of the security; [and]

(4) if signatures on an initial transaction statement are admitted or established, the facts stated in the statement are presumed to be true as of the time of its issuance; and

(5) after it is shown that a defense or defect exists the plaintiff has the burden of establishing that he or some person under whom he claims is a person against whom the defense or defect is ineffective (section 8202 [(relating to responsibility and defenses of issuer; notice of defect or defense)]).

§ 8106. Applicability.

The law (including the conflict of laws rules) of the jurisdiction of organization of the issuer governs the validity of a security , the effectiveness of registration by the issuer, and the rights and duties of the issuer with respect to :

(1) registration of transfer [are governed by the law (including the conflict of laws rules) of the jurisdiction of organization of the issuer.] of a certificated security;

(2) registration of transfer, pledge or release of an uncertificated security; and

(3) sending of statements of uncertificated securities.

§ 8107. Securities [deliverable] transferable ; action for price.

(a) Securities [deliverable] transferable .--Unless otherwise agreed and subject to any applicable law or regulation respecting short sales, a person obligated to [deliver] transfer securities may [deliver] transfer any certificated security of the specified issue in bearer form or registered in the name of the transferee , or indorsed to him or in blank , or he may transfer an equivalent uncertificated security to the transferee or a person designated by the transferee .

(b) Action for price of securities.--[When] If the buyer fails to pay the price as it comes due under a contract of sale, the seller may recover the price of :

(1) [of] certificated securities accepted by the buyer; [and]

(2) uncertificated securities that have been transferred to the buyer or a person designated by the buyer; and

(3) [of] other securities if efforts at their resale would be unduly burdensome or if there is no readily available market for their resale.

Section 19. Title 13 is amended by adding a section to read:

§ 8108. Registration of pledge and release of uncertificated securities.

A security interest in an uncertificated security may be evidenced by the registration of pledge to the secured party or a person designated by him. There can be no more than one registered pledge of an uncertificated security at any time. The registered owner of an uncertificated security is the person in whose name the security is registered, even if the security is subject to a registered pledge. The rights of a registered pledgee of an uncertificated security under this division are terminated by the registration of release.

Section 20. Sections 8201, 8202, 8203, 8204, 8205, 8206, 8207 and 8208 of Title 13 are amended to read:

§ 8201. "Issuer."

(a) General rule.--With respect to obligations on or defenses to a security , "issuer" includes a person who:

(1) places or authorizes the placing of his name on a certificated security (otherwise than as authenticating trustee, registrar, transfer agent or the like) to evidence that it represents a share, participation or other interest in his property or in an enterprise or to evidence his duty to perform an obligation [evidenced] represented by the certificated security;

(2) creates shares, participations or other interests in his property or in an enterprise or undertakes obligations, which shares, participations, interests or obligations are uncertificated securities;

(3) directly or indirectly creates fractional interests in his rights or property , which fractional interests are [evidenced] represented by certificated securities; or

[(3)] (4) becomes responsible for or in place of any other person described as an issuer in this section.

(b) Guarantor.--With respect to obligations on or defenses to a security , a guarantor is an issuer to the extent of his guaranty , whether or not his obligation is noted on [the] a certificated security or on statements of uncertificated securities sent pursuant to section 8408 (relating to statements of uncertificated securities) .

(c) Person for whom transfer books maintained.--With respect to registration of a transfer , pledge or release (Chapter 84) , "issuer" means a person on whose behalf transfer books are maintained.

§ 8202. Responsibility and defenses of issuer; notice of defect or defense.

(a) Terms included in security.--Even against a purchaser for value and without notice, the terms of a security include :

(1) if the security is certificated, those stated on the security [and] ;

(2) if the security is uncertificated, those contained in the initial transaction statement sent to such purchaser, or, if his interest is transferred to him other than by registration of transfer, pledge or release, the initial transaction statement sent to the registered owner or registered pledgee; and

(3) those made part of the security by reference , on the certificated security or in the initial transaction statement, to another instrument, indenture or document or to a constitution, statute, ordinance, rule, regulation, order or the like , to the extent that the terms [so] referred to do not conflict with the [stated] terms stated on the certificated security or contained in the statement .

[Such a] A reference under paragraph (3) does not of itself charge a purchaser for value with notice of a defect going to the validity of the security even though the certificated security or statement expressly states that a person accepting it admits [such] notice.

(b) Defect affecting validity of security.--

[(1)] A certificated security in the hands of a purchaser for value or an uncertificated security as to which an initial transaction statement has been sent to a purchaser for value, other than [one] a security issued by a government or governmental agency or unit , even though issued with a defect going to its validity , is valid [in the hands of a] with respect to the purchaser [for value and] if he is without notice of the particular defect unless the defect involves a violation of constitutional provisions , in which case the security is valid [in the hands of] with respect to a subsequent purchaser for value and without notice of the defect.

[(2) The rule of paragraph (1)] This subsection applies to an issuer [which] that is a government or governmental agency or unit only if either there has been substantial compliance with the legal requirements governing the issue or the issuer has received a substantial consideration for the issue as a whole or for the particular security and a stated purpose of the issue is one for which the issuer has power to borrow money or issue the security.

(c) Lack of genuineness as complete defense.--Except as [otherwise] provided in the case of certain unauthorized signatures [on issue] (section 8205), lack of genuineness of a certificated security or an initial transaction statement is a complete defense , even against a purchaser for value and without notice.

(d) Defenses ineffective against purchaser for value without notice.--All other defenses of the issuer of a certificated or uncertificated security, including nondelivery and conditional delivery of [the] a certificated security , are ineffective against a purchaser for value who has taken without notice of the particular defense.

(e) Right to cancel certain contracts unaffected.--Nothing in this section shall be construed to affect the right of a party to a "when, as and if issued" or a "when distributed" contract to cancel the contract in the event of a material change in the character of the security [which] that is the subject of the contract or in the plan or arrangement pursuant to which [such] the security is to be issued or distributed.

§ 8203. Staleness as notice of defects or defenses.

(a) General rule.--After an act or event [which creates] creating a right to immediate performance of the principal obligation [evidenced] represented by [the] a certificated security or [which] that sets a date on or after which the security is to be presented or surrendered for redemption or exchange, a purchaser is charged with notice of any defect in its issue or defense of the issuer if :

(1) [if] the act or event is one requiring the payment of money [or] , the delivery of certificated securities , the registration of transfer of uncertificated securities, or [both] any of these on presentation or surrender of the certificated security [and such] , the funds or securities are available on the date set for payment or exchange , and he takes the security more than one year after that date; and

(2) [if] the act or event is not covered by paragraph (1) and he takes the security more than two years after the date set for surrender or presentation or the date on which [such] performance became due.

(b) Exception.--A call [which] that has been revoked is not within subsection (a).

§ 8204. Effect of restrictions by issuer on transfer.

[Unless noted conspicuously on the security a] A restriction on transfer of a security imposed by the issuer , even though otherwise lawful , is ineffective [except] against [a] any person [with] without actual knowledge of it unless:

(1) the security is certificated and the restriction is noted conspicuously thereon; or

(2) the security is uncertificated and a notation of the restriction is contained in the initial transaction statement sent to the person or, if his interest is transferred to him other than by registration of transfer, pledge or release, the initial transaction statement sent to the registered owner or the registered pledgee .

§ 8205. Effect of unauthorized signature on [issue] certificated security or initial transaction statement .

An unauthorized signature placed on a certificated security prior to or in the course of issue or placed on an initial transaction statement is ineffective [except that] , but the signature is effective in favor of a purchaser for value [and] of the certificated security or a purchaser for value of an uncertificated security to whom such initial transaction statement has been sent, if the purchaser is without notice of the lack of authority [if] and the signing has been done by:

(1) an authenticating trustee, registrar, transfer agent or other person entrusted by the issuer with the signing of the security [or] , of similar securities or [their] of initial transaction statements or the immediate preparation for signing of any of them ; or

(2) an employee of the issuer , or of any of the foregoing , entrusted with responsible handling of the security or initial transaction statement .

§ 8206. Completion or alteration of [instrument] certificated security or initial transaction statement .

(a) Completion of certificated security [containing necessary signatures.--Where a] .--If a certificated security contains the signatures necessary to its issue or transfer but is incomplete in any other respect:

(1) any person may complete it by filling in the blanks as authorized; and

(2) even though the blanks are incorrectly filled in, the security as completed is enforceable by a purchaser who took it for value and without notice of [such] the incorrectness.

(b) Enforceability of improperly altered certificated security.--A complete certificated security [which] that has been improperly altered , even though fraudulently , remains enforceable but only according to its original terms.

(c) Completion of initial transaction statement.--If an initial transaction statement contains the signatures necessary to its validity, but is incomplete in any other respect:

(1) any person may complete it by filling in the blanks as authorized; and

(2) even though the blanks are incorrectly filled in, the statement as completed is effective in favor of the person to whom it is sent if he purchased the security referred to therein for value and without notice of the incorrectness.

(d) Effectiveness of improperly altered initial transaction statement.--A complete initial transaction statement that has been improperly altered, even though fraudulently, is effective in favor of a purchaser to whom it has been sent, but only according to its original terms.

§ 8207. Rights and duties of issuer with respect to registered owners and registered pledges .

(a) [General rule] Registered owner of certificated security .--Prior to due presentment for registration of transfer of a certificated security in registered form , the issuer or indenture trustee may treat the registered owner as the person exclusively entitled to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner.

(b) Registered owner of uncertificated security.--Subject to the provisions of subsections (c), (d) and (f), the issuer or indenture trustee may treat the registered owner of an uncertificated security as the person exclusively entitled to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner.

(c) Registered owner of uncertificated security subject to registered pledge.--The registered owner of an uncertificated security that is subject to a registered pledge is not entitled to registration of transfer prior to the due presentment to the issuer of a release instruction. The exercise of conversion rights with respect to a convertible uncertificated security is a transfer within the meaning of this section.

(d) Transfer instructions from registered pledgee of uncertificated security.--Upon due presentment of a transfer instruction from the registered pledgee of an uncertificated security, the issuer shall:

(1) register the transfer of the security to the new owner free of pledge, if the instruction specifies a new owner (who may be the registered pledgee) and does not specify a pledgee;

(2) register the transfer of the security to the new owner subject to the interest of the existing pledgee, if the instruction specifies a new owner and the existing pledgee; or

(3) register the release of the security from the existing pledge and register the pledge of the security to the other pledgee, if the instruction specifies the existing owner and another pledgee.

(e) Continuity of perfection of security interest.--Continuity of perfection of a security interest is not broken by registration of transfer under subsection (d)(2) or by registration of release and pledge under subsection (d)(3), if the security interest is assigned.

(f) Uncertificated security subject to registered pledge.--If an uncertificated security is subject to a registered pledge:

(1) any uncertificated securities issued in exchange for or distributed with respect to the pledged security shall be registered subject to the pledge;

(2) any certificated securities issued in exchange for or distributed with respect to the pledged security shall be delivered to the registered pledgee; and

(3) any money paid in exchange for or in redemption of part or all of the security shall be paid to the registered pledgee.

(g) Liability of registered owner for calls, etc., unaffected.--Nothing in this division shall be construed to affect the liability of the registered owner of a security for calls, assessments or the like.

§ 8208. Effect of signature of authenticating trustee, registrar or transfer agent.

(a) General rule.--A person placing his signature upon a certificated security or an initial transaction statement as authenticating trustee, registrar, transfer agent or the like warrants to a purchaser for value of the certificated security or a purchaser for value of an uncertificated security to whom the initial transaction statement has been sent, if the purchaser is without notice of the particular defect , that:

(1) the certificated security or initial transaction statement is genuine;

(2) his own participation in the issue or registration of the transfer, pledge or release of the security is within his capacity and within the scope of the [authorization] authority received by him from the issuer; and

(3) he has reasonable grounds to believe that the security is in the form and within the amount the issuer is authorized to issue.

(b) Limitation.--Unless otherwise agreed, a person by so placing his signature does not assume responsibility for the validity of the security in other respects.

Section 21. The heading of Chapter 83 of Title 13 is amended to read:

CHAPTER 83

[PURCHASE] TRANSFER

Section 22. Sections 8301, 8302, 8303, 8304, 8305, 8306, 8307, 8308, 8309, 8310, 8311, 8312, 8313, 8314, 8315, 8316, 8317, 8318, 8319 and 8320 of Title 13 are amended to read:

§ 8301. Rights acquired by purchaser[; "adverse claim"; title acquired by bona fide purchaser].

(a) Rights acquired by purchaser.--Upon [delivery] transfer of a security to a purchaser (section 8313), the purchaser acquires the rights in the security which his transferor had or had actual authority to convey [except that a purchaser who has himself been a party to any fraud or illegality affecting the security or who as a prior holder had notice of an adverse claim cannot improve his position by taking from a later bona fide purchaser. "Adverse claim" includes a claim that a transfer was or would be wrongful or that a particular adverse person is the owner of or has an interest in the security.] unless the rights of the purchaser are limited by section 8302(d) (relating to "bona fide purchaser"; "adverse claim"; title acquired by bona fide purchaser).

[(b) Rights acquired by bona fide purchaser.--A bona fide purchaser in addition to acquiring the rights of a purchaser also acquires the security free of any adverse claim.

(c)] (b) Rights acquired by [purchaser] transferee of limited interest.--A [purchaser] transferee of a limited interest acquires rights only to the extent of the interest [purchased] transferred. The creation or release of a security interest in a security is the transfer of a limited interest in that security .

§ 8302. "Bona fide purchaser[.]" ; "adverse claim"; title acquired by bona fide purchaser.

(a) Bona fide purchaser.-- A "bona fide purchaser" is a purchaser for value in good faith and without notice of any adverse claim :

(1) who takes delivery of a certificated security in bearer form or [of one] in registered form , issued [to him] or indorsed to him or in blank[.] ;

(2) to whom the transfer, pledge or release of an uncertificated security is registered on the books of the issuer; or

(3) to whom a security is transferred under the provisions of section 8313(a)(3), (4)(i) or (7) (relating to when transfer to purchaser occurs; financial intermediary as bona fide purchaser; "financial intermediary").

(b) Adverse claim.--"Adverse claim" includes a claim that a transfer was or would be wrongful or that a particular adverse person is the owner of or has an interest in the security.

(c) Rights acquired by bona fide purchaser.--A bona fide purchaser in addition to acquiring the rights of a purchaser (section 8301) also acquires his interest in the security free of any adverse claim.

(d) Limitation on rights acquired from bona fide purchaser.--Notwithstanding section 8301(a) (relating to rights acquired by purchaser), the transferee of a particular certificated security who has been a party to any fraud or illegality affecting the security, or who as a prior holder of that certificated security had notice of an adverse claim, cannot improve his position by taking from a bona fide purchaser.

§ 8303. "Broker."

"Broker" means a person engaged for all or part of his time in the business of buying and selling securities, who in the transaction concerned acts for, [or] buys a security from , or sells a security to a customer. Nothing in this division determines the capacity in which a person acts for purposes of any other statute or rule to which [such] the person is subject.

§ 8304. Notice to purchaser of adverse claims.

(a) [General rule] Notice to purchaser of certificated security .--A purchaser (including a broker for the seller or buyer , but excluding an intermediary bank) of a certificated security is charged with notice of adverse claims if:

(1) the security , whether in bearer or registered form , has been indorsed "for collection" or "for surrender" or for some other purpose not involving transfer; or

(2) the security is in bearer form and has on it an unambiguous statement that it is the property of a person other than a transferor. The mere writing of a name on a security is not such a statement.

(b) Notice to purchaser of uncertificated security.--A purchaser (including a broker for the seller or buyer, but excluding an intermediary bank) to whom the transfer, pledge or release of an uncertificated security is registered is charged with notice of adverse claims as to which the issuer has a duty under section 8403(d) (relating to duty of issuer as to adverse claims) at the time of registration and which are noted in the initial transaction statement sent to the purchaser or, if his interest is transferred to him other than by registration of transfer, pledge or release, the initial transaction statement sent to the registered owner or the registered pledgee.

[(b)] (c) Duty of inquiry in fiduciary transactions.--The fact that the purchaser (including a broker for the seller or buyer) of a certificated or uncertificated security has notice that the security is held for a third person or is registered in the name of or indorsed by a fiduciary does not create a duty of inquiry into the rightfulness of the transfer or constitute constructive notice of adverse claims. [If, however,] However, if the purchaser (excluding an intermediary bank) has knowledge that the proceeds are being used or [that] the transaction is for the individual benefit of the fiduciary or otherwise in breach of duty, the purchaser is charged with notice of adverse claims.

§ 8305. Staleness as notice of adverse claims.

An act or event [which] that creates a right to immediate performance of the principal obligation [evidenced] represented by [the] a certificated security or [which] sets a date on or after which [the] a certificated security is to be presented or surrendered for redemption or exchange does not [of] itself constitute any notice of adverse claims except in the case of a [purchase] transfer :

(1) after one year from any date set for [such] presentment or surrender for redemption or exchange; or

(2) after six months from any date set for payment of money against presentation or surrender of the security if funds are available for payment on that date.

§ 8306. Warranties on presentment and transfer of certificated securities; warranties of originators of instructions .

(a) Warranties of [presenter to issuer] person presenting certificated security .--A person who presents a certificated security for registration of transfer or for payment or exchange warrants to the issuer that he is entitled to the registration, payment or exchange. But a purchaser for value and without notice of adverse claims who receives a new, reissued or reregistered certificated security on registration of transfer or receives an initial transaction statement confirming the registration of transfer of an equivalent uncertificated security to him warrants only that he has no knowledge of any unauthorized signature (section 8311) in a necessary indorsement.

(b) Warranties of person transferring a certificated security to purchaser for value.--A person by transferring a certificated security to a purchaser for value warrants only that:

(1) his transfer is effective and rightful;

(2) the security is genuine and has not been materially altered; and

(3) he knows of no fact which might impair the validity of the security.

(c) Warranties of intermediary delivering certificated security.--[Where] If a certificated security is delivered by an intermediary known to be entrusted with delivery of the security on behalf of another or with collection of a draft or other claim against [such] delivery, the intermediary by [such] delivery warrants only his own good faith and authority, even though he has purchased or made advances against the claim to be collected against the delivery.

(d) Warranties of pledgee or other holder for security.--A pledgee or other holder for security who redelivers [the] a certificated security received, or after payment and on order of the debtor delivers that security to a third person , makes only the warranties of an intermediary under subsection (c).

(e) Warranties of person originating instruction; issuer.--A person who originates an instruction warrants to the issuer that:

(1) he is an appropriate person to originate the instruction; and

(2) at the time the instruction is presented to the issuer, he will be entitled to the registration of transfer, pledge or release.

(f) Warranties of person originating instruction; signature guarantor.--A person who originates an instruction warrants to any person specially guaranteeing his signature (section 8312(c)) that:

(1) he is an appropriate person to originate the instruction; and

(2) at the time the instruction is presented to the issuer:

(i) he will be entitled to the registration of transfer, pledge or release; and

(ii) the transfer, pledge or release requested in the instruction will be registered by the issuer free from all liens, security interests, restrictions and claims other than those specified in the instruction.

(g) Other warranties of person originating instruction.--A person who originates an instruction warrants to a purchaser for value and to any person guaranteeing the instruction (section 8312(f)) that:

(1) he is an appropriate person to originate the instruction;

(2) the uncertificated security referred to therein is valid; and

(3) at the time the instruction is presented to the issuer:

(i) the transferor will be entitled to the registration of transfer, pledge or release;

(ii) the transfer, pledge or release requested in the instruction will be registered by the issuer free from all liens, security interests, restrictions and claims other than those specified in the instruction; and

(iii) the requested transfer, pledge or release will be rightful.

(h) Warranties of person who originates instruction of release or transfer.--If a secured party is the registered pledgee or the registered owner of an uncertificated security, a person who originates an instruction of release or transfer to the debtor or, after payment and on order of the debtor, a transfer instruction to a third person, warrants to the debtor or the third person only that he is an appropriate person to originate the instruction and, at the time the instruction is presented to the issuer, the transferor will be entitled to the registration of release or transfer. If a transfer instruction to a third person who is a purchaser for value is originated on order of the debtor, the debtor makes to the purchaser the warranties of subsection (g)(2) and (3)(ii) and (iii).

(i) Warranties of person who transfers uncertificated security to purchaser for value.--A person who transfers an uncertificated security to a purchaser for value and does not originate an instruction in connection with the transfer warrants only that:

(1) his transfer is effective and rightful; and

(2) the uncertificated security is valid.

[(e)] (j) Warranties, rights and privileges of broker.--A broker gives to his customer and to the issuer and a purchaser the applicable warranties provided in this section and has the rights and privileges of a purchaser under this section. The warranties of and in favor of the broker acting as an agent are in addition to applicable warranties given by and in favor of his customer.

§ 8307. Effect of delivery without indorsement; right to compel indorsement.

[Where] If a certificated security in registered form has been delivered to a purchaser without a necessary indorsement he may become a bona fide purchaser only as of the time the indorsement is supplied, but against the transferor the transfer is complete upon delivery and the purchaser has a specifically enforceable right to have any necessary indorsement supplied.

§ 8308. [Indorsement, how made; special indorsement; indorser not a guarantor; partial assignment] Indorsements; instructions .

(a) Manner of indorsement.--An indorsement of a certificated security in registered form is made when an appropriate person signs on it or on a separate document an assignment or transfer of the security or a power to assign or transfer it or [when the] his signature [of such person] is written without more upon the back of the security.

(b) Blank and special indorsements.--An indorsement may be in blank or special. An indorsement in blank includes an indorsement to bearer. A special indorsement specifies [the person] to whom the security is to be transferred, or who has power to transfer it. A holder may convert a blank indorsement into a special indorsement.

[(c) Definition of "appropriate person".--An "appropriate person" in subsection (a) means:

(1) the person specified by the security or by special indorsement to be entitled to the security;

(2) where the person so specified is described as a fiduciary but is no longer serving in the described capacity,--either that person or his successor;

(3) where the security or indorsement so specifies more than one person as fiduciaries and one or more are no longer serving in the described capacity,--the remaining fiduciary or fiduciaries, whether or not a successor has been appointed or qualified;

(4) where the person so specified is an individual and is without capacity to act by virtue of death, incapacity, infancy or otherwise, --his executor, administrator, guardian or like fiduciary;

(5) where the security or indorsement so specifies more than one person as tenants by the entirety or with right of survivorship and by reason of death all cannot sign,--the survivor or survivors;

(6) a person having power to sign under applicable law or controlling instrument; or

(7) to the extent that any of the foregoing persons may act through an agent,--his authorized agent.

(d) Indorser not a guarantor.--Unless otherwise agreed the indorser by his indorsement assumes no obligation that the security will be honored by the issuer.

(e) Effect of partial indorsement.--An indorsement purporting to be only of part of a security representing units intended by the issuer to be separately transferable is effective to the extent of the indorsement.]

(c) Effect of partial indorsement.--An indorsement purporting to be only of part of a certificated security representing units intended by the issuer to be separately transferable is effective to the extent of the indorsement.

(d) Definition of "instruction".--An "instruction" is an order to the issuer of an uncertificated security requesting that the transfer, pledge or release from pledge of the uncertificated security specified therein be registered.

(e) Instruction originated by appropriate person.--An instruction originated by an appropriate person is:

(1) a writing signed by an appropriate person; or

(2) a communication to the issuer in any form agreed upon in a writing signed by the issuer and an appropriate person.

If an instruction has been originated by an appropriate person but is incomplete in any other respect, any person may complete it as authorized, and the issuer may rely on it as completed even though it has been completed incorrectly.

(f) Definition of "appropriate person" in certain cases.--An "appropriate person" in subsection (a) means the person specified by the certificated security or by special indorsement to be entitled to the security.

(g) Definition of "appropriate person" in other cases.--"An appropriate person" in subsection (e) means:

(1) for an instruction to transfer or pledge an uncertificated security which is then not subject to a registered pledge, the registered owner; or

(2) for an instruction to transfer or release an uncertificated security which is then subject to a registered pledge, the registered pledgee.

(h) Definition of "appropriate person" in additional cases.--In addition to the persons designated in subsections (f) and (g), "an appropriate person" in subsections (a) and (e) includes:

(1) if the person designated is described as a fiduciary but is no longer serving in the described capacity, either that person or his successor;

(2) if the persons designated are described as more than one person as fiduciaries and one or more are no longer serving in the described capacity, the remaining fiduciary or fiduciaries, whether or not a successor has been appointed or qualified;

(3) if the person designated is an individual and is without capacity to act by virtue of death, incompetence, infancy, or otherwise, his executor, administrator, guardian or like fiduciary;

(4) if the persons designated are described as more than one person as tenants by the entirety or with right of survivorship and by reason of death all cannot sign, the survivor or survivors;

(5) a person having power to sign under applicable law or controlling instrument; and

(6) to the extent that the person designated or any of the foregoing persons may act through an agent, his authorized agent.

(i) Indorser not a guarantor.--Unless otherwise agreed, the indorser of a certificated security by his indorsement or the originator of an instruction by his origination assumes no obligation that the security will be honored by the issuer but only the obligations provided in section 8306 (relating to warranties on presentment and transfer of certificated securities; warranties of originators of instructions).

[(f)] (j) Status of appropriate person.--Whether the person signing is appropriate is determined as of the date of signing and an indorsement made by or an instruction originated by [such a person] him does not become unauthorized for the purposes of this division by virtue of any subsequent change of circumstances.

[(g)] (k) Effect of noncompliance by fiduciary on his indorsement.--Failure of a fiduciary to comply with a controlling instrument or with the law of the state having jurisdiction of the fiduciary relationship, including any law requiring the fiduciary to obtain court approval of the transfer, pledge or release, does not render his indorsement or an instruction originated by him unauthorized for the purposes of this division.

§ 8309. Effect of indorsement without delivery.

An indorsement of a certificated security , whether special or in blank , does not constitute a transfer until delivery of the certificated security on which it appears or , if the indorsement is on a separate document , until delivery of both the document and the certificated security.

§ 8310. Indorsement of certificated security in bearer form.

An indorsement of a certificated security in bearer form may give notice of adverse claims (section 8304) but does not otherwise affect any right to registration the holder [may possess] possesses .

§ 8311. Effect of unauthorized indorsement or instruction .

Unless the owner or pledgee has ratified an unauthorized indorsement or instruction or is otherwise precluded from asserting its ineffectiveness:

(1) he may assert its ineffectiveness against the issuer or any purchaser , other than a purchaser for value and without notice of adverse claims , who has in good faith received a new, reissued or reregistered certificated security on registration of transfer or received an initial transaction statement confirming the registration of transfer, pledge or release of an equivalent uncertificated security to him ; and

(2) an issuer who registers the transfer of a certificated security upon the unauthorized indorsement or who registers the transfer, pledge or release of an uncertificated security upon the unauthorized instruction is subject to liability for improper registration (section 8404).

§ 8312. Effect of guaranteeing signature , [or] indorsement or instruction .

(a) Warranties of signature guarantor.--Any person guaranteeing a signature of an indorser of a certificated security warrants that at the time of signing:

(1) the signature was genuine;

(2) the signer was an appropriate person to indorse (section 8308); and

(3) the signer had legal capacity to sign.

[But the guarantor does not otherwise warrant the rightfulness of the particular transfer.]

(b) Warranties of person guaranteeing signature of originator of instruction.--Any person guaranteeing a signature of the originator of an instruction warrants that at the time of signing:

(1) the signature was genuine;

(2) the signer was an appropriate person to originate the instruction (section 8308) if the person specified in the instruction as the registered owner or registered pledgee of the uncertificated security was, in fact, the registered owner or registered pledgee of such security, as to which fact the signature guarantor makes no warranty;

(3) the signer had legal capacity to sign; and

(4) the taxpayer identification number, if any, appearing on the instruction as that of the registered owner or registered pledgee was the taxpayer identification number of the signer or of the owner or pledgee for whom the signer was acting.

(c) Warranties of person specially guaranteeing signature of originator of an instruction.--Any person specially guaranteeing the signature of the originator of an instruction makes not only the warranties of a signature guarantor (subsection (b)) but also warrants that at the time the instruction is presented to the issuer:

(1) the person specified in the instruction as the registered owner or registered pledgee of the uncertificated security will be the registered owner or registered pledgee; and

(2) the transfer, pledge or release of the uncertificated security requested in the instruction will be registered by the issuer free from all liens, security interests, restrictions and claims other than those specified in the instruction.

(d) Limitations on warranties.--The guarantor under subsections (a) and (b) or the special guarantor under subsection (c) does not otherwise warrant the rightfulness of the particular transfer, pledge or release.

[(b)] (e) Warranties of indorsement guarantor.--Any person [may guarantee] guaranteeing an indorsement of a certificated security [and by so doing warrants not only the signature (subsection (a))] makes not only the warranties of a signature guarantor under subsection (a) but also warrants the rightfulness of the particular transfer in all respects. [But no issuer may require a guarantee of indorsement as a condition to registration of transfer.]

(f) Warranties of person guaranteeing certain instructions.--Any person guaranteeing an instruction requesting the transfer, pledge or release of an uncertificated security makes not only the warranties of a special signature guarantor under subsection (c) but also warrants the rightfulness of the particular transfer, pledge or release in all respects.

(g) Matters which issuer may not require.--No issuer may require a special guarantee of signature (subsection (c)), a guarantee of indorsement (subsection (e)) or a guarantee of instruction (subsection (f)) as a condition to registration of transfer, pledge or release.

[(c)] (h) Persons protected by warranties.--The foregoing warranties are made to any person taking or dealing with the security in reliance on the guarantee , and the guarantor is liable to [such] the person for any loss resulting from breach of the warranties.

§ 8313. When [delivery] transfer to purchaser occurs; [broker of purchaser] financial intermediary as [holder] bona fide purchaser; "financial intermediary".

(a) When [delivery] transfer to purchaser occurs.--[Delivery] Transfer of a security or a limited interest (including a security interest) therein to a purchaser occurs [when] only :

(1) at the time he or a person designated by him acquires possession of a certificated security;

(2) at the time the transfer, pledge or release of an uncertificated security is registered to him or a person designated by him;

[(2)] (3) at the time his [broker] financial intermediary acquires possession of a certificated security specially indorsed to or issued in the name of the purchaser;

[(3) his broker] (4) at the time a financial intermediary, not a clearing corporation, sends him confirmation of the purchase and also by book entry or otherwise identifies [a specific security in the possession of the broker] as belonging to the purchaser[;] :

(i) a specific certificated security in the possession of the financial intermediary;

(ii) a quantity of securities that constitute or are part of a fungible bulk of certificated securities in the financial intermediary's possession or of uncertificated securities registered in the name of the financial intermediary; or

(iii) a quantity of securities that constitute or are part of a fungible bulk of securities shown on the account of the financial intermediary on the books of another financial intermediary;

[(4)] (5) with respect to an identified certificated security to be delivered while still in the possession of a third person [when] , not a financial intermediary, at the time that person acknowledges that he holds for the purchaser; [or]

(6) with respect to a specific uncertificated security the pledge or transfer of which has been registered to a third person, not a financial intermediary, at the time that person acknowledges that he holds for the purchaser;

[(5)] (7) at the time appropriate entries to the account of the purchaser or a person designated by him on the books of a clearing corporation are made under section 8320 (relating to transfer or pledge within [a] central depository system)[.] ;

(8) with respect to the transfer of a security interest where the debtor has signed a security agreement containing a description of the security, at the time a written notification, which, in the case of the creation of the security interest, is signed by the debtor (which may be a copy of the security agreement) or which, in the case of the release or assignment of the security interest created pursuant to this paragraph, is signed by the secured party, is received by:

(i) a financial intermediary on whose books the interest of the transferor in the security appears;

(ii) a third person, not a financial intermediary, in possession of the security, if it is certificated;

(iii) a third person, not a financial intermediary, who is the registered owner of the security, if it is uncertificated and not subject to a registered pledge; or

(iv) a third person, not a financial intermediary, who is the registered pledgee of the security, if it is uncertificated and subject to a registered pledge;

(9) with respect to the transfer of a security interest where the transferor has signed a security agreement containing a description of the security, at the time new value is given by the secured party; or

(10) with respect to the transfer of a security interest where the secured party is a financial intermediary and the security has already been transferred to the financial intermediary under paragraph (1), (2), (3), (4) or (7), at the time the transferor has signed a security agreement containing a description of the security and value is given by the secured party.

(b) Rights of purchaser in security held by [broker] financial intermediary .--The purchaser is the owner of a security held for him by [his broker,] a financial intermediary, but [is not the holder] cannot be a bona fide purchaser of a security so held except [as] in the circumstances specified in subsection (a)[(2)](3) , (4)(i) and [(5)] (7) . [Where] If a security so held is part of a fungible bulk , as in the circumstances specified in subsection (a)(4)(ii) and (iii), the purchaser is the owner of a proportionate property interest in the fungible bulk.

(c) Notice of adverse claim to security held by [broker] financial intermediary .--Notice of an adverse claim received by the [broker] financial intermediary or by the purchaser after the [broker] financial intermediary takes delivery of a certificated security as a holder for value or after the transfer, pledge or release of an uncertificated security has been registered free of the claim to a financial intermediary who has given value is not effective either as to the [broker] financial intermediary or as to the purchaser. However, as between the [broker] financial intermediary and the purchaser , the purchaser may demand [delivery] transfer of an equivalent security as to which no notice of [an] adverse claim has been received.

(d) Definition of "financial intermediary".--A "financial intermediary" is a bank, broker, clearing corporation or other person (or the nominee of any of them) which in the ordinary course of its business maintains security accounts for its customers and is acting in that capacity. A financial intermediary may have a security interest in securities held in account for its customer.

§ 8314. Duty to [deliver] transfer , when completed.

(a) Sale through broker.--Unless otherwise agreed [where] , if a sale of a security is made on an exchange or otherwise through brokers:

(1) the selling customer fulfills his duty to [deliver when he] transfer at the time he;

(i) places [such] a certificated security in the possession of the selling broker or of a person designated by the broker [or if requested causes an acknowledgment to be made to the selling broker that it is held for him; and] ;

(ii) causes an uncertificated security to be registered in the name of the selling broker or a person designated by the broker;

(iii) if requested, causes an acknowledgment to be made to the selling broker that a certificated or uncertificated security is held for the broker; or

(iv) places in the possession of the selling broker or of a person designated by the broker a transfer instruction for an uncertificated security, providing the issuer does not refuse to register the requested transfer if the instruction is presented to the issuer for registration within 30 days thereafter; and

(2) the selling broker , including a correspondent broker acting for a selling customer , fulfills his duty to [deliver by placing the] transfer at the time he:

(i) places a certificated security [or a like security] in the possession of the buying broker or a person designated by [him or by effecting] the buying broker;

(ii) causes an uncertificated security to be registered in the name of the buying broker or a person designated by the buying broker;

(iii) places in the possession of the buying broker or of a person designated by the buying broker a transfer instruction for an uncertificated security, providing the issuer does not refuse to register the requested transfer if the instruction is presented to the issuer for registration within 30 days thereafter; or

(iv) effects clearance of the sale in accordance with the rules of the exchange on which the transaction took place.

(b) Other sales.--Except as [otherwise] provided in this section and unless otherwise agreed, the duty of a transferor to [deliver] transfer a security under a contract of purchase is not fulfilled until he:

(1) places [the] a certificate d security in form to be negotiated by the purchaser in the possession of the purchaser or of a person designated by [him or at the request of the purchaser causes an acknowledgment to be made to the purchaser that it is held for him.] the purchaser;

(2) causes an uncertificated security to be registered in the name of the purchaser or a person designated by the purchaser; or

(3) if the purchaser requests, causes an acknowledgment to be made to the purchaser that a certificated or uncertificated security is held for the purchaser.

(c) Sales to brokers.-- Unless made on an exchange , a sale to a broker purchasing for his own account is within [this] subsection (b) and not within subsection (a).

§ 8315. Action against [purchaser] transferee based upon wrongful transfer.

(a) General rule.--Any person against whom the transfer of a security is wrongful for any reason, including his incapacity, [may] as against anyone except a bona fide purchaser , may:

(1) reclaim possession of the certificated security [or] wrongfully transferred;

(2) obtain possession of any new certificated security [evidencing] representing all or part of the same rights [or] ;

(3) compel the origination of an instruction to transfer to him or a person designated by him an uncertificated security constituting all or part of the same rights; or

(4) have damages.

(b) Unauthorized [endorsement] indorsements .--If the transfer is wrongful because of an unauthorized indorsement of a certificated security , the owner may also reclaim or obtain possession of the security or a new certificated security , even from a bona fide purchaser , if the ineffectiveness of the purported indorsement can be asserted against him under the provisions of this division on unauthorized indorsements (section 8311).

(c) Remedies available.--The right to obtain or reclaim possession of a certificated security or to compel the origination of a transfer instruction may be specifically enforced and [its] the transfer of a certificated or uncertificated security enjoined and [the] a certificated security impounded pending the litigation.

§ 8316. Right of purchaser to requisites for registration of transfer , pledge or release on books.

Unless otherwise agreed , the transferor [must] of a certificated security or the transferor, pledgor or pledgee of an uncertificated security on due demand must supply his purchaser with any proof of his authority to transfer , pledge or release or with any other requisite [which may be] necessary to obtain registration of the transfer , pledge or release of the security ; but , if the transfer , pledge or release is not for value , a transferor , pledgor or pledgee need not do so unless the purchaser furnishes the necessary expenses. Failure within a reasonable time to comply with a demand made [within a reasonable time] gives the purchaser the right to reject or rescind the transfer , pledge or release .

§ 8317. [Attachment or levy upon security] Rights of creditor .

(a) [Seizure required.--No] General rule for certificated securities.--Subject to the exceptions in subsections (c) and (d), no attachment or levy upon a certificated security or any share or other interest [evidenced] represented thereby which is outstanding [shall be] is valid until the security is actually seized by the officer making the attachment or levy , but a certificated security which has been surrendered to the issuer may be [attached or levied upon at the source.] reached by a creditor by legal process at the chief executive office of the issuer in the United States.

(b) General rule for uncertificated securities.--An uncertificated security registered in the name of the debtor may not be reached by a creditor except by legal process at the chief executive office of the issuer in the United States.

(c) Reaching interest of debtor when secured party is not financial intermediary.--The interest of a debtor in a certificated security that is in the possession of a secured party not a financial intermediary or in an uncertificated security registered in the name of a secured party not a financial intermediary (or in the name of a nominee of the secured party) may be reached by a creditor by legal process upon the secured party.

(d) Reaching interest of debtor when secured party is financial intermediary.--The interest of a debtor in a certificated security that is in the possession of or registered in the name of a financial intermediary or in an uncertificated security registered in the name of a financial intermediary may be reached by a creditor by legal process upon the financial intermediary on whose books the interest of the debtor appears.

(e) Effect of lien upon transfer of security to third party.--Unless otherwise provided by law, the lien of a creditor upon the interest of a debtor in a security obtained pursuant to subsection (c) or (d) is not a restraint on the transfer of the security, free of the lien, to a third party for new value; but, in the event of a transfer, the lien applies to the proceeds of the transfer in the hands of the secured party or financial intermediary, subject to any claims having priority.

[(b)] (f) Remedies available.--A creditor whose debtor is the owner of a security [shall be] is entitled to [such] aid from courts of appropriate jurisdiction, by injunction or otherwise, in reaching [such] the security or in satisfying the claim by means [thereof as is] allowed at law or in equity in regard to property [which] that cannot readily be [attached or levied upon] reached by ordinary legal process.

§ 8318. No conversion by good faith [delivery] conduct .

An agent or bailee who in good faith (including observance of reasonable commercial standards if he is in the business of buying, selling or otherwise dealing with securities) has received certificated securities and sold, pledged or delivered them or has sold or caused the transfer or pledge of uncertificated securities over which he had control according to the instructions of his principal is not liable for conversion or for participation in breach of fiduciary duty although the principal had no right [to dispose of them] so to deal with the securities .

§ 8319. Statute of frauds.

A contract for the sale of securities is not enforceable by way of action or defense unless:

(1) there is some writing signed by the party against whom enforcement is sought or by his authorized agent or broker sufficient to indicate that a contract has been made for sale of a stated quantity of described securities at a defined or stated price;

(2) delivery of [the] a certificated security or transfer instruction has been accepted , or transfer of an uncertificated security has been registered and the transferee has failed to send written objection to the issuer within ten days after receipt of the initial transaction statement confirming the registration, or payment has been made , but the contract is enforceable under this paragraph only to the extent of [such] the delivery , registration or payment;

(3) within a reasonable time a writing in confirmation of the sale or purchase and sufficient against the sender under paragraph (1) has been received by the party against whom enforcement is sought and he has failed to send written objection to its contents within ten days after its receipt; or

(4) the party against whom enforcement is sought admits in his pleadings, testimony or otherwise in court that a contract was made for the sale of a stated quantity of described securities at a defined or stated price.

§ 8320. Transfer or pledge within [a] central depository system.

(a) Manner of effecting transfer [or] , pledge or release .--[If a security:] In addition to other methods, a transfer, pledge or release of a security or any interest therein may be effected by the making of appropriate entries on the books of a clearing corporation reducing the account of the transferor, pledgor or pledgee and increasing the account of the transferee, pledgee or pledgor by the amount of the obligation, or the number of shares or rights transferred, pledged or released, if the security is shown on the account of a transferor, pledgor or pledgee on the books of the clearing corporation, is subject to the control of the clearing corporation and:

(1) if certificated:

(i) is in the custody of [a] the clearing corporation [or of] , another clearing corporation, a custodian bank or a nominee of [either subject to the instructions of the clearing corporation;] any of them; and

[(2)] (ii) is in bearer form or indorsed in blank by an appropriate person or registered in the name of the clearing corporation [or] , a custodian bank or a nominee of [either; and] any of them; or

(2) if uncertificated, is registered in the name of the clearing corporation, another clearing corporation, a custodian bank or a nominee of any of them.

[(3) is shown on the account of a transferor or pledgor on the books of the clearing corporation;

then, in addition to other methods, a transfer or pledge of the security or any interest therein may be effected by the making of appropriate entries on the books of the clearing corporation reducing the account of the transferor or pledgor and increasing the account of the transferee or pledgee by the amount of the obligation or the number of shares or rights transferred or pledged.]

(b) Requisites for book entries.--Under this section entries may be made with respect to like securities or interests therein as a part of a fungible bulk and may refer merely to a quantity of a particular security without reference to the name of the registered owner, certificate or bond number or the like and, in appropriate cases, may be on a net basis taking into account other transfers [or] , pledges or releases of the same security.

(c) Effect of transfer [or] , pledge or release .--A transfer [or pledge] under this section [has the effect of a delivery of a security in bearer form or duly indorsed in blank (section 8301 (relating to rights acquired by purchaser; "adverse claim"; title acquired by bona fide purchaser)) representing the amount of the obligation or the number of shares or rights transferred or pledged.] is effective (section 8313) and the purchaser acquires the rights of the transferor (section 8301). A pledge or release under this section is the transfer of a limited interest. If a pledge or the creation of a security interest is intended, [the making of entries has the effect of a taking of delivery by the pledgee or a secured party (section 9304 (relating to perfection of security interest in instruments, documents and goods covered by documents) and section 9305 (relating to when possession by secured party perfects security interest without filing)).] the security interest is perfected at the time when both value is given by the pledgee and the appropriate entries are made (section 8321). A transferee or pledgee under this section [is a holder] may be a bona fide purchaser (section 8302) .

(d) Transfer or pledge not a registration.--A transfer or pledge under this section [does] is not [constitute] a registration of transfer under Chapter 84 (relating to registration).

(e) Effect of inappropriate entries.--That entries made on the books of the clearing corporation as provided in subsection (a) are not appropriate does not affect the validity or effect of the entries [nor] or the liabilities or obligations of the clearing corporation to any person adversely affected thereby.

Section 23. Title 13 is amended by adding a section to read:

§ 8321. Enforceability, attachment, perfection and termination of security interests.

(a) Enforceability and attachment.--A security interest in a security is enforceable and can attach only if it is transferred to the secured party or a person designated by him pursuant to a provision of section 8313(a) (relating to when transfer to purchaser occurs; financial intermediary as bona fide purchaser; "financial intermediary").

(b) Perfection.--A security interest so transferred pursuant to agreement by a transferor who has rights in the security to a transferee who has given value is a perfected security interest, but a security interest that has been transferred solely under section 8313(a)(9) becomes unperfected after 21 days unless, within that time, the requirements for transfer under any other provision of section 8313(a) are satisfied.

(c) Other provisions.--A security interest in a security is subject to the provisions of Division 9 (relating to secured transactions), but:

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

(2) no written security agreement signed by the debtor is necessary to make the security interest enforceable, except as otherwise provided in section 8313(a)(8), (9) or (10).

The secured party has the rights and duties provided under section 9207 (relating to rights and duties when collateral in possession of secured party), to the extent they are applicable, whether or not the security is certificated, and, if certificated, whether or not it is in his possession.

(d) Termination and temporary perfection.--Unless otherwise agreed, a security interest in a security is terminated by transfer to the debtor or a person designated by him pursuant to a provision of section 8313(a). If a security is thus transferred, the security interest, if not terminated, becomes unperfected unless the security is certificated and is delivered to the debtor for the purpose of ultimate sale or exchange or presentation, collection, renewal or registration of transfer. In that case, the security interest becomes unperfected after 21 days unless, within that time, the security (or securities for which it has been exchanged) is transferred to the secured party or a person designated by him pursuant to a provision of section 8313(a).

Section 24. Sections 8401, 8402, 8403, 8404, 8405 and 8406 of Title 13 are amended to read:

§ 8401. Duty of issuer to register transfer , pledge or release .

(a) General rule.--[Where] If a certificated security in registered form is presented to the issuer with a request to register transfer or an instruction is presented to the issuer with a request to register transfer, pledge or release , the issuer [is under a duty to] shall register the transfer , pledge or release as requested if:

(1) the security is indorsed or the instruction was originated by the appropriate person or persons (section 8308);

(2) reasonable assurance is given that those indorsements or instructions are genuine and effective (section 8402);

(3) the issuer has no duty [to inquire into] as to adverse claims or has discharged [any such] the duty (section 8403);

(4) any applicable law relating to the collection of taxes has been complied with; and

(5) the transfer , pledge or release is in fact rightful or is to a bona fide purchaser.

(b) Liability for failure or delay in [registering transfer] registration .--[Where] If an issuer is under a duty to register a transfer , pledge or release of a security , the issuer is also liable to the person presenting [it] a certificated security or an instruction for registration or his principal for loss resulting from any unreasonable delay in registration or from failure or refusal to register the transfer , pledge or release .

§ 8402. Assurance that indorsements and instructions are effective.

(a) Assurances that issuer may require.--The issuer may require the following assurance that each necessary indorsement of a certificated security or each instruction (section 8308) is genuine and effective:

(1) In all cases, a guarantee of the signature (section 8312(a) or (b) ) of the person indorsing a certificated security or originating an instruction, including, in the case of an instruction, a warranty of the taxpayer identification number or, in the absence thereof, other reasonable assurance of identity .

(2) [Where] If the indorsement is made or the instruction is originated by an agent, appropriate assurance of authority to sign.

(3) [Where] If the indorsement is made or the instruction is originated by a fiduciary, appropriate evidence of appointment or incumbency.

(4) [Where] If there is more than one fiduciary, reasonable assurance that all who are required to sign have done so.

(5) [Where] If the indorsement is made or the instruction is originated by a person not covered by any of the foregoing, assurance appropriate to the case corresponding as nearly as may be to the foregoing.

(b) Guarantee of the signature.--A "guarantee of the signature" in subsection (a) means a guarantee signed by or on behalf of a person reasonably believed by the issuer to be responsible. The issuer may adopt standards with respect to responsibility [provided such standards] if they are not manifestly unreasonable.

(c) Appropriate evidence of appointment or incumbency.--"Appropriate evidence of appointment or incumbency" in subsection (a) means:

(1) in the case of a fiduciary appointed or qualified by a court, a certificate issued by or under the direction or supervision of that court or an officer thereof and dated within 60 days before the date of presentation for transfer , pledge or release ; or

(2) in any other case, a copy of a document showing the appointment or a certificate issued by or on behalf of a person reasonably believed by the issuer to be responsible or, in the absence of [such a] that document or certificate, other evidence reasonably deemed by the issuer to be appropriate. The issuer may adopt standards with respect to [such] the evidence [provided such standards] if they are not manifestly unreasonable. The issuer is not charged with notice of the contents of any document obtained pursuant to this paragraph [(2)] except to the extent that the contents relate directly to the appointment or incumbency.

(d) Additional assurances that issuer may require.--The issuer may elect to require reasonable assurance beyond that specified in this section , but if it does so and , for a purpose other than that specified in subsection (c)(2) , both requires and obtains a copy of a will, trust, indenture, articles of copartnership, bylaws or other controlling instrument , it is charged with notice of all matters contained therein affecting the transfer , pledge or release .

§ 8403. [Limited duty of inquiry] Duty of issuer as to adverse claims .

(a) [General rule] Duty of issuer as to certificated security .--An issuer to whom a certificated security is presented for registration [is under a duty to] shall inquire into adverse claims if:

(1) a written notification of an adverse claim is received at a time and in a manner [which affords] affording the issuer a reasonable opportunity to act on it prior to the issuance of a new, reissued or re-registered certificated security , and the notification identifies the claimant, the registered owner and the issue of which the security is a part , and provides an address for communications directed to the claimant; or

(2) the issuer is charged with notice of an adverse claim from a controlling instrument [which] it has elected to require under section 8402(d) (relating to [additional assurances that issuer may require] assurance that indorsements and instructions are effective ).

(b) [Method of inquiry] Discharge of duty as to certificated security .--The issuer may discharge any duty of inquiry by any reasonable means, including notifying an adverse claimant by registered or certified mail at the address furnished by him or , if there be no such address , at his residence or regular place of business that the certificated security has been presented for registration of transfer by a named person, and that the transfer will be registered unless within 30 days from the date of mailing the notification, either:

(1) an appropriate restraining order, injunction or other process issues from a court of competent jurisdiction; or

(2) there is filed with the issuer an indemnity bond sufficient in the judgment of the issuer to protect the issuer and any transfer agent, registrar or other agent of the issuer involved[,] from any loss [which] it or they may suffer by complying with the adverse claim [is filed with the issuer].

(c) When inquiry unnecessary.--Unless an issuer is charged with notice of an adverse claim from a controlling instrument which it has elected to require under section 8402(d) or receives notification of an adverse claim under subsection (a), [where] if a certificated security presented for registration is indorsed by the appropriate person or persons the issuer is under no duty to inquire into adverse claims. In particular:

(1) an issuer registering a certificated security in the name of a person who is a fiduciary or who is described as a fiduciary is not bound to inquire into the existence, extent, or correct description of the fiduciary relationship ; and thereafter the issuer may assume without inquiry that the newly registered owner continues to be the fiduciary until the issuer receives written notice that the fiduciary is no longer acting as such with respect to the particular security;

(2) an issuer registering transfer on an indorsement by a fiduciary is not bound to inquire whether the transfer is made in compliance with a controlling instrument or with the law of the state having jurisdiction of the fiduciary relationship, including any law requiring the fiduciary to obtain court approval of the transfer; and

(3) the issuer is not charged with notice of the contents of any court record or file or other recorded or unrecorded document even though the document is in its possession and even though the transfer is made on the indorsement of a fiduciary to the fiduciary himself or to his nominee.

(d) Duty of issuer as to uncertificated security.--An issuer is under no duty as to adverse claims with respect to an uncertificated security except:

(1) claims embodied in a restraining order, injunction or other legal process served upon the issuer if the process was served at a time and in a manner affording the issuer a reasonable opportunity to act on it in accordance with the requirements of subsection (e);

(2) claims of which the issuer has received a written notification from the registered owner or the registered pledgee if the notification was received at a time and in a manner affording the issuer a reasonable opportunity to act on it in accordance with the requirements of subsection (e);

(3) claims (including restrictions on transfer not imposed by the issuer) to which the registration of transfer to the present registered owner was subject and were so noted in the initial transaction statement sent to him; and

(4) claims as to which an issuer is charged with notice from a controlling instrument it has elected to require under section 8402(d).

(e) Discharge of duty as to uncertificated security.--If the issuer of an uncertificated security is under a duty as to an adverse claim, he discharges that duty by:

(1) Including a notation of the claim in any statements sent with respect to the security under section 8408(c), (f) and (g) (relating to statements of uncertificated securities).

(2) Refusing to register the transfer or pledge of the security unless the nature of the claim does not preclude transfer or pledge subject thereto.

(f) Notation of adverse claim.--If the transfer or pledge of the security is registered subject to an adverse claim, a notation of the claim must be included in the initial transaction statement and all subsequent statements sent to the transferee and pledgee under section 8408.

(g) Exceptions to duty of issuer.--Notwithstanding subsections (d) and (e), if an uncertificated security was subject to a registered pledge at the time the issuer first came under a duty as to a particular adverse claim, the issuer has no duty as to that claim if transfer of the security is requested by the registered pledgee or an appropriate person acting for the registered pledgee unless:

(1) the claim was embodied in legal process which expressly provides otherwise;

(2) the claim was asserted in a written notification from the registered pledgee;

(3) the claim was one as to which the issuer was charged with notice from a controlling instrument it required under section 8402(d) in connection with the pledgee's request for transfer; or

(4) the transfer requested is to the registered owner.

§ 8404. Liability and nonliability for registration.

(a) General rule.--Except as [otherwise] provided in any law relating to the collection of taxes, the issuer is not liable to the owner , pledgee or any other person suffering loss as a result of the registration of a transfer , pledge or release of a security if:

(1) there were on or with [the] a certificated security the necessary indorsements or the issuer has received an instruction originated by an appropriate person (section 8308); and

(2) the issuer had no duty [to inquire into] as to adverse claims or has discharged [any such] the duty (section 8403).

(b) Transfer to person not entitled.--[Where] If an issuer has registered a transfer of a certificated security to a person not entitled to it , the issuer on demand [must] shall deliver a like security to the true owner unless:

(1) the registration was pursuant to subsection (a);

(2) the owner is precluded from asserting any claim for registering the transfer under section 8405(a) (relating to lost, destroyed and stolen certificated securities); or

(3) [such] the delivery would result in overissue, in which case the liability of the issuer is governed by section 8104 (relating to effect of overissue ; "overissue" ).

(c) Improper registration.--If an issuer has improperly registered a transfer, pledge or release of an uncertificated security, the issuer on demand from the injured party shall restore the records as to the injured party to the condition that would have obtained if the improper registration had not been made unless:

(1) the registration was pursuant to subsection (a); or

(2) the registration would result in overissue, in which case the liability of the issuer is governed by section 8104.

§ 8405. Lost, destroyed and stolen certificated securities.

(a) Failure of owner to notify issuer.--[Where] If a certificated security has been lost, apparently destroyed or wrongfully taken , and the owner fails to notify the issuer of that fact within a reasonable time after he has notice of it and the issuer registers a transfer of the security before receiving [such a] notification, the owner is precluded from asserting against the issuer any claim for registering the transfer under section 8404 (relating to liability and nonliability for registration) or any claim to a new security under this section.

(b) When owner entitled to new security.--[Where] If the owner of a certificated security claims that the security has been lost, destroyed or wrongfully taken, the issuer [must] shall issue a new certificated security or, at the option of the issuer, an equivalent uncertificated security in place of the original security if the owner:

(1) so requests before the issuer has notice that the security has been acquired by a bona fide purchaser;

(2) files with the issuer a sufficient indemnity bond; and

(3) satisfies any other reasonable requirements imposed by the issuer.

(c) Rights and duties of issuer when original certificated security presented for transfer.--If, after the issue of [the] a new certificated or uncertificated security, a bona fide purchaser of the original certificated security presents it for registration of transfer, the issuer [must] shall register the transfer, unless registration would result in overissue, in which event the liability of the issuer is governed by section 8104 (relating to effect of overissue ; "overissue" ). In addition to any rights on the indemnity bond, the issuer may recover the new certificated security from the person to whom it was issued or any person taking under him except a bona fide purchaser or may cancel the uncertificated security unless a bona fide purchaser or any person taking under a bona fide purchaser is then the registered owner or registered pledgee thereof .

§ 8406. Duty of authenticating trustee, transfer agent or registrar.

(a) General rule.--[Where] If a person acts as authenticating trustee, transfer agent, registrar, or other agent for an issuer in the registration of transfers of its certificated securities or in the registration of transfers, pledges and releases of its uncertificated securities, in the issue of new securities or in the cancellation of surrendered securities:

(1) he is under a duty to the issuer to exercise good faith and due diligence in performing his functions; and

(2) [he has] with regard to the particular functions he performs , he has the same obligation to the holder or owner of [the] a certificated security or to the owner or pledgee of an uncertificated security and has the same rights and privileges as the issuer has in regard to those functions.

(b) Notice to agent is notice to issuer.--Notice to an authenticating trustee, transfer agent, registrar or other [such] agent is notice to the issuer with respect to the functions performed by the agent.

Section 25. Title 13 is amended by adding sections to read:

§ 8407. Exchangeability of securities.

(a) Applicability of section.--No issuer is subject to the requirements of this section unless it regularly maintains a system for issuing the class of securities involved under which both certificated and uncertificated securities are regularly issued to the category of owners, which includes the person in whose name the new security is to be registered.

(b) Duty to issue uncertificated security for certificated security.--Upon surrender of a certificated security with all necessary indorsements and presentation of a written request by the person surrendering the security, the issuer, if he has no duty as to adverse claims or has discharged the duty (section 8403), shall issue to the person or a person designated by him an equivalent uncertificated security subject to all liens, restrictions and claims that were noted on the certificated security.

(c) Duty to issue certificated security for uncertificated security.--Upon receipt of a transfer instruction originated by an appropriate person who so requests, the issuer of an uncertificated security shall cancel the uncertificated security and issue an equivalent certificated security on which must be noted conspicuously any liens and restrictions of the issuer and any adverse claims as to which the issuer has a duty under section 8403(d) (relating to duty of issuer as to adverse claims) to which the uncertificated security was subject. The certificated security shall be registered in the name of and delivered to:

(1) the registered owner, if the uncertificated security was not subject to a registered pledge; or

(2) the registered pledgee, if the uncertificated security was subject to a registered pledge.

§ 8408. Statements of uncertificated securities.

(a) Initial transaction statement for transfer.--Within two business days after the transfer of an uncertificated security has been registered, the issuer shall send to the new registered owner and, if the security has been transferred subject to a registered pledge, to the registered pledgee a written statement containing:

(1) a description of the issue of which the uncertificated security is a part;

(2) the number of shares or units transferred;

(3) the name and address and any taxpayer identification number of the new registered owner and, if the security has been transferred subject to a registered pledge, the name and address and any taxpayer identification number of the registered pledgee;

(4) a notation of any liens and restrictions of the issuer and any adverse claims (as to which the issuer has a duty under section 8403(d) (relating to duty of issuer as to adverse claims)) to which the uncertificated security is or may be subject at the time of registration or a statement that there are none of those liens, restrictions or adverse claims; and

(5) the date the transfer was registered.

(b) Initial transaction statement for pledge.--Within two business days after the pledge of an uncertificated security has been registered, the issuer shall send to the registered owner and the registered pledgee a written statement containing:

(1) a description of the issue of which the uncertificated security is a part;

(2) the number of shares or units pledged;

(3) the name and address and any taxpayer identification number of the registered owner and the registered pledgee;

(4) a notation of any liens and restrictions of the issuer and any adverse claims (as to which the issuer has duty under section 8403(d)) to which the uncertificated security is or may be subject at the time of registration or a statement that there are none of those liens, restrictions or adverse claims; and

(5) the date the pledge was registered.

(c) Initial transaction statement for release.--Within two business days after the release from pledge of an uncertificated security has been registered, the issuer shall send to the registered owner and the pledgee whose interest was released a written statement containing:

(1) a description of the issue of which the uncertificated security is a part;

(2) the number of shares or units released from pledge;

(3) the name and address and any taxpayer identification number of the registered owner and the pledgee whose interest was released;

(4) a notation of any liens and restrictions of the issuer and any adverse claims (as to which the issuer has a duty under section 8403(d)) to which the uncertificated security is or may be subject at the time of registration or a statement that there are none of those liens, restrictions or adverse claims; and

(5) the date the release was registered.

(d) What constitutes initial transaction statement.--An "initial transaction statement" is the statement sent to:

(1) the new registered owner and, if applicable, to the registered pledgee pursuant to subsection (a);

(2) the registered pledgee pursuant to subsection (b); or

(3) the registered owner pursuant to subsection (c).

Each initial transaction statement shall be signed by or on behalf of the issuer and must be identified as "initial transaction statement."

(e) Statement of transfer.--Within two business days after the transfer of an uncertificated security has been registered, the issuer shall send to the former registered owner and the former registered pledgee, if any, a written statement containing:

(1) a description of the issue of which the uncertificated security is a part;

(2) the number of shares or units transferred;

(3) the name and address and any taxpayer identification number of the former registered owner and of any former registered pledgee; and

(4) the date the transfer was registered.

(f) Periodic statement of registered owner.--At periodic intervals no less frequent than annually and at any time upon the reasonable written request of the registered owner, the issuer shall send to the registered owner of each uncertificated security a dated written statement containing:

(1) a description of the issue of which the uncertificated security is a part;

(2) the name and address and any taxpayer identification number of the registered owner;

(3) the number of shares or units of the uncertificated security registered in the name of the registered owner on the date of the statement;

(4) the name and address and any taxpayer identification number of any registered pledgee and the number of shares or units subject to the pledge; and

(5) a notation of any liens and restrictions of the issuer and any adverse claims (as to which the issuer has a duty under section 8403(d)) to which the uncertificated security is or may be subject or a statement that there are none of those liens, restrictions or adverse claims.

(g) Periodic statement to registered pledgee.--At periodic intervals no less frequent than annually and at any time upon the reasonable written request of the registered pledgee, the issuer shall send to the registered pledgee of each uncertificated security a dated written statement containing:

(1) a description of the issue of which the uncertificated security is a part;

(2) the name and address and any taxpayer identification number of the registered owner;

(3) the name and address and any taxpayer identification number of the registered pledgee;

(4) the number of shares or units subject to the pledge; and

(5) a notation of any liens and restrictions of the issuer and any adverse claims (as to which the issuer has a duty under section 8403(d)) to which the uncertificated security is or may be subject or a statement that there are none of those liens, restrictions or adverse claims.

(h) Limitation on duty to such statements.--If the issuer sends the statements described in subsections (f) and (g) at periodic intervals no less frequent than quarterly, the issuer is not obliged to send additional statements upon request unless the owner or pledgee requesting them pays to the issuer the reasonable cost of furnishing them.

(i) Legend required on statements.--Each statement sent pursuant to this section must bear a conspicuous legend reading substantially as follows: "This statement is merely a record of the rights of the addressee as of the time of its issuance. Delivery of this statement of itself, confers no rights on the recipient. This statement is neither a negotiable instrument nor a security."

Section 26. Sections 9101 and 9103(c)(1) and (f) of Title 13 are amended to read:

§ 9101. Short title of division.

This division shall be known and may be cited as the ["]Uniform Commercial Code[--] , Article 9, Secured Transactions.["]

§ 9103. Perfection of security interests in multiple state transactions.

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(c) Accounts, general intangibles and mobile goods.--

(1) This subsection applies to accounts (other than an account described in subsection (e) relating to minerals) and general intangibles (other than uncertificated securities) and to goods which are mobile and which are of a type normally used in more than one jurisdiction, such as motor vehicles, trailers, rolling stock, airplanes, shipping containers, road building and construction machinery and commercial harvesting machinery and the like, if the goods are equipment or are inventory leased or held for lease by the debtor to others and are not covered by a certificate of title described in subsection (b).

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(f) Uncertificated securities.--

[(1) Except as provided in paragraph (2), the] The law (including the conflict of laws rules) of the jurisdiction of organization of the issuer governs the perfection and the effect of perfection or nonperfection of a security interest in uncertificated securities.

[(2) In the case of a registered corporation as defined in 15 Pa.C.S. § 2502 (relating to registered corporation status), which has a class or series, or any part thereof, of uncertificated securities listed on the New York Stock Exchange or the American Stock Exchange, the law (excluding the conflict of laws rules) of the jurisdiction in which those exchanges are located governs the perfection and the effect of perfection or nonperfection of a security interest in such uncertificated securities.]

Section 27. The definition of "instrument" in section 9105(a) of Title 13 is amended to read:

§ 9105. Definitions and index of definitions.

(a) Definitions.--The following words and phrases when used in this division shall have, unless the context clearly indicates otherwise, the meanings given to them in this subsection:

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"Instrument." A negotiable instrument (defined in section 3104), or a certificated security (defined in section 8102) or any other writing which evidences a right to the payment of money and is not itself a security agreement or lease and is of a type which is in ordinary course of business transferred by delivery with any necessary indorsement or assignment.

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Section 28. Section 9111 of Title 13 is repealed.

Section 29. Sections 9113, 9203(a), 9206(a), 9302(a)(6), 9304(a), (d) and (e), 9305, 9309 and 9312(a) and (g) of Title 13 are amended to read:

§ 9113. Security interests arising under division on sales or division on leases .

A security interest arising solely under Division 2 (relating to sales) or 2A (relating to leases) is subject to the provisions of this division except that to the extent that and so long as the debtor does not have or does not lawfully obtain possession of the goods:

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

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

(3) the rights of the secured party on default by the debtor are governed by [Division 2.] :

(i) Division 2 in the case of a security interest arising solely under Division 2; or

(ii) Division 2A in the case of a security interest arising solely under Division 2A.

§ 9203. Attachment and enforceability of security interest; proceeds, formal requisites.

(a) Enforceability.--Subject to the provisions of section [4208] 4210 on the security interest of a collecting bank , section 8321 on security interests in securities and section 9113 on a security interest arising under the division on sales, a security interest is not enforceable against the debtor or third parties with respect to the collateral and does not attach unless:

(1) the collateral is in the possession of the secured party pursuant to agreement, or the debtor has signed a security agreement which contains a description of the collateral and in addition, when the security interest covers crops growing or to be grown or timber to be cut, a description of the land concerned;

(2) value has been given; and

(3) the debtor has rights in the collateral.

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§ 9206. Agreement not to assert defenses against assignee; modification of sales warranties where security agreement exists.

(a) Agreement not to assert defenses against assignee.--Subject to any statute or decision which establishes a different rule for buyers or lessees of consumer goods, an agreement by a buyer or lessee that he will not assert against an assignee any claim or defense which he may have against the seller or lessor is enforceable by an assignee who takes his assignment for value, in good faith and without notice of a claim or defense, except as to defenses of a type which may be asserted against a holder in due course of a negotiable instrument under Division 3 (relating to [commercial paper] negotiable instruments ). A buyer who as part of one transaction signs both a negotiable instrument and a security agreement makes such an agreement.

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§ 9302. When filing is required to perfect security interest; security interests to which filing provisions of division do not apply.

(a) General rule.--A financing statement must be filed to perfect all security interests except the following:

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(6) a security interest of a collecting bank [(section 4208) or] (section 4210) or in securities (section 8321) or arising under Division 2 (relating to sales) (see section 9113) or covered in subsection (c); and

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§ 9304. Perfection of security interest in instruments, documents and goods covered by documents; perfection by permissive filing; temporary perfection without filing or transfer of possession.

(a) Chattel paper, negotiable documents, money and instruments.--A security interest in chattel paper or negotiable documents may be perfected by filing. A security interest in money or instruments (other than certificated securities or instruments which constitute part of chattel paper) can be perfected only by the secured party's taking possession, except as provided in subsections (d) and (e) and section 9306(b) and (c) (relating to "proceeds"; rights of secured party on disposition of collateral).

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(d) Temporary perfection for new value given.--A security interest in instruments (other than certificated securities) or negotiable documents is perfected without filing or the taking of possession for a period of 21 days from the time it attaches to the extent that it arises for new value given under a written security agreement.

(e) Temporary perfection on transfer of possession.--A security interest remains perfected for a period of 21 days without filing where a secured party having a perfected security interest in an instrument (other than a certificated security) , a negotiable document or goods in possession of a bailee other than one who has issued a negotiable document therefor:

(1) makes available to the debtor the goods or documents representing the goods for the purpose of ultimate sale or exchange or for the purpose of loading, unloading, storing, shipping, transshipping, manufacturing, processing or otherwise dealing with them in a manner preliminary to their sale or exchange, but priority between conflicting security interests in the goods is subject to section 9312(c) (relating to priorities among conflicting security interests in same collateral); or

(2) delivers the instrument to the debtor for the purpose of ultimate sale or exchange or of presentation, collection, renewal or registration of transfer.

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§ 9305. When possession by secured party perfects security interest without filing.

A security interest in letters of credit and advices of credit (section 5116(b)(1)), goods, instruments (other than certificated securities) , money, negotiable documents or chattel paper may be perfected by the secured party's taking possession of the collateral. If such collateral other than goods covered by a negotiable document is held by a bailee, the secured party is deemed to have possession from the time the bailee receives notification of the interest of the secured party. A security interest is perfected by possession from the time possession is taken without relation back and continues only so long as possession is retained, unless otherwise specified in this division.

The security interest may be otherwise perfected as provided in this division before or after the period of possession by the secured party.

§ 9309. Protection of purchasers of instruments and documents.

Nothing in this division limits the rights of a holder in due course of a negotiable instrument (section 3302) or a holder to whom a negotiable document of title has been duly negotiated (section 7501) or a bona fide purchaser of a security (section [8301] 8302 ) and such holders or purchasers take priority over an earlier security interest even though perfected. Filing under this division does not constitute notice of the security interest to such holders or purchasers.

§ 9312. Priorities among conflicting security interests in same collateral.

(a) Precedence of certain rules of priority.--The rules of priority stated in other sections of this chapter and in the following sections shall govern where applicable:

Section [4208] 4210 (relating to security interest of collecting bank in items, accompanying documents and proceeds).

Section 9103 (relating to perfection of security interests in multiple state transactions).

Section 9114 (relating to consignment).

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(g) Future advances.--If future advances are made while a security interest is perfected by filing or the taking of possession or under section 8321 (relating to enforceability, attachment, perfection and termination of security interests) , the security interest has the same priority for the purposes of subsection (e) with respect to the future advances as it does with respect to the first advance. If a commitment is made before or while the security interest is so perfected, the security interest has the same priority with respect to advances made pursuant thereto. In other cases a perfected security interest has priority from the date the advance is made.

Section 30. Rights and obligations that arose under 13 Pa.C.S. Div. 6 (relating to bulk transfers) and 13 Pa.C.S. § 9111 (relating to applicability of bulk transfer laws) before their repeal remain valid and may be enforced as though those provisions had not been repealed.

Section 31. The following acts and parts of acts are repealed:

As much as reads "all applicable provisions of 13 Pa.C.S. Div. 6 (relating to bulk transfers) and all other" of 15 Pa.C.S. § 1957(b)(1).

As much as reads "all applicable provisions of Division 6 of Title 13 (relating to bulk transfers) and all other" of 15 Pa.C.S. § 5957(b).

42 Pa.C.S. § 5522(b)(3).

Section 32. This act shall take effect in one year.

APPROVED--The 9th day of July, A. D. 1992.

ROBERT P. CASEY