Foreclosures: The Lie We Are Living

Most people, including homeowners, believe that the homeowners do owe the money and that the entities that are attempting to foreclose should win. That is why the free house myth is so pervasive.

The result is that foreclosures are being granted to entities that (a) do not exist or (b) have nothing to do with the loan, debt, note or mortgage or both. The benefits of foreclosure all run in favor of the megabanks and against the real parties in interest, the investors. These banks have managed to separate the debt from the paperwork in a highly effective way that can be, but usually isn’t, challenged on cross examination and well-founded objections.

The truth is that the homeowners do not owe any money to the people who are collecting or enforcing the loan. End of story. The rest is a lie.

Let us help you plan for trial and draft your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult.

I provide advice and consultation to many people and lawyers so they can spot the key required elements of a scam — in and out of court. If you have a deal you want skimmed for red flags order the Consult and fill out the REGISTRATION FORM. A few hundred dollars well spent is worth a lifetime of financial ruin.

PLEASE FILL OUT AND SUBMIT OUR FREE REGISTRATION FORM WITHOUT ANY OBLIGATION. OUR PRIVACY POLICY IS THAT WE DON’T USE THE FORM EXCEPT TO SPEAK WITH YOU OR PERFORM WORK FOR YOU. THE INFORMATION ON THE FORMS ARE NOT SOLD NOR LICENSED IN ANY MANNER, SHAPE OR FORM. NO EXCEPTIONS.

Get a Consult and TERA (Title & Encumbrances Analysis and & Report) 202-838-6345 or 954-451-1230. The TERA replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).

THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

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One of my favorite lawyers is getting discouraged. He says that it is virtually impossible for a homeowner to successfully defend a foreclosure action especially if it involves a blank endorsement (bearer paper). Foreclosure defense is indeed an uphill battle but it is one in which the homeowner can — and should — prevail.

I don’t agree with the premise that homeowners will and should lose foreclosure cases. I think most of the foreclosures are built on an illusion created and fabricated by the megabanks. I think we would have won the cases we won even without the standing issue, with or without blank or special indorsements.

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The compounding error that keeps recurring is the difference between enforcement of the note and enforcement of the mortgage. You can enforce the note without owning the debt but you can’t enforce the mortgage without owning the debt. But in court they are conflated because few people draw the distinction.
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Possession of bearer paper (the note) raises a presumption that the debt was transferred. But that is a rebuttable presumption and proof at trial should be required as to the transfer (purchase) of the debt for value. But if the debt was actually transferred that would mean it was purchased for value. And if it was purchased for value then any transferee with half a brain would assert status of a holder in due course. They don’t assert HDC status because they didn’t pay value for the debt because the debt was never transferred and the fictitious delivery of the original note was intended to deceive the homeowner, his/her lawyer and the court.
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If a trust is involved, the existence of the trust should be pled and proven. Nobody is raising that issue even though it is a winner.
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It is an uphill battle and many judges will disregard the appropriate arguments because they don’t see or don’t want to see the consequences of their assumptions and bias.
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As a result we have a name being used as a DBA by multiple layers of conduits that don’t lead back to the actual owner of the debt. Homeowners did not create this problem nor should they suffer the consequences of bank chicanery. Banks did it because the big lie was extremely overwhelmingly and pornographically profitable. Banks have already made windfall profits on the loan whether the borrower pays or not. They then get an extra windfall by foreclosing because they can. At the same time the foreclosure sale raises yet another false presumption that everything that went before the sale was valid and authorized.
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This all happens under the cover of why should homeowners get a windfall free house? Most people don’t believe that the banks are getting a windfall for an investment that has been paid off multiple times. They believe the lie that the homeowner’s debt is still out there and belongs to someone who ultimately is connected to the entities that seek foreclosure or collection. It is a lie. Windfall results are more common than most people realize. It frequently happens that one litigant, because of a decision or the wording some legislation will get a windfall. In many cases the question is which party should get the windfall?
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The real question is who should get the windfall that has been created by the banks? Should it be the banks who have already profited in multiples of the loan amount or the homeowner whose signature and credit reputation was used as the foundation for the multiple sales of his loan? On a level playing field, the courts ought to tilt toward the homeowners who have mostly been lured into loans based upon wildly false appraisals on terms that they could not afford — and remember that under law the affordability of the loan is the responsibility of the lender, not the borrower.
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Finding excuses to rule in favor of a foreclosing party that usually doesn’t even exist much less own the debt, note and mortgage is simply the wrong way to go. This is not a matter of policy for the legislature although the legislatures could intervene. It is a matter of equity and foreclosures are in a court of equity not at law. The party who caused the mess and who brought the country to its knees should not be the party who is rewarded with a foreclosure to cover a nonexisting loss.
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If the investors were included I could see why both investors and homeowners would be considered victims and how the court could rule in favor of the investors. But the investors are decidedly NOT involved. They are unaffected by foreclosure of the loans because in reality they have only received a promise to pay from one of the megabanks doing business as “XYZ Trust”. They are completely uninformed about the debt or its enforcement and do not get the proceeds of a foreclosure sale.
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The underwriting is done by the megabank but the loan comes from investors who believe they are investing in a trust when in fact they are merely making a deposit with the underwriting investment bank.
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The whole reason why these banks were converted from investment banks to commercial banks over a weekend was not just to gain access to the Fed window to sell worthless mortgage bonds. It was because they had already been acting as though they were commercial banks by taking money from investors and merely starting an “account” for each of the investors wherein the only party who could draw money out of it was the “bank.”
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So after our experience in the courts, it is unfair to homeowners and unfair to us as the attorneys who made it happen, to say that it is impossible for homeowners to win foreclosure cases. Good cross examination, and trial practice including the use of well-founded objections still wins the day more often than not. 

How Does the Debt Get Transferred?

Basic Black Letter law: A debt can only be transferred by the owner of the debt. The owner of the debt may use agents or intermediaries to accomplish the transfer of the debt. If an intermediary executes a document of transfer without reference and identification of the owner of the debt, the document has potentially fatal defects.

Parole evidence may be admitted, upon discretion of a court of competent jurisdiction. But in the end, the party claiming authority to enforce the debt in a foreclosure of the mortgage or deed of trust must prove that it is doing so on behalf of the owner of the debt.

The simplest way of doing this is by alleging or asserting the name of the owner of the debt and the fact that the enforcer is representing the owner of the debt. In the absence of such allegation or assertion it is more likely than not that the enforcer is not representing the owner of the debt and therefore has no authority to enforce the foreclosure.

Promissory notes may be enforced without ownership of the debt. Mortgages and deeds of trust cannot. Article 9 of the UCC as adopted by all 50 states as their state law requires that the debt be owned or purchased for value as a condition precedent to the right of the claimant to enforce a mortgage through foreclosure.

Let us help you plan for trial and draft your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult.

I provide advice and consent to many people and lawyers so they can spot the key required elements of a scam — in and out of court. If you have a deal you want skimmed for red flags order the Consult and fill out the REGISTRATION FORM. A few hundred dollars well spent is worth a lifetime of financial ruin.

PLEASE FILL OUT AND SUBMIT OUR FREE REGISTRATION FORM WITHOUT ANY OBLIGATION. OUR PRIVACY POLICY IS THAT WE DON’T USE THE FORM EXCEPT TO SPEAK WITH YOU OR PERFORM WORK FOR YOU. THE INFORMATION ON THE FORMS ARE NOT SOLD NOR LICENSED IN ANY MANNER, SHAPE OR FORM. NO EXCEPTIONS.

Get a Consult and TERA (Title & Encumbrances Analysis and & Report) 202-838-6345 or 954-451-1230. The TERA replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).

THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

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The courts are hiding the issue but there is full consensus on the fact that a mortgage without ownership of the debt is useless. If you analyze the decisions it is always there. But the courts are creative in coming to the conclusion that the transfer of ownership of the debt MUST have occurred (even if it didn’t).

They are bridging that divide by making some legal presumptions like “why execute the assignment of mortgage if you were not transferring the debt?” This of course ignores the question of whether (1) the assignor owned the debt (2) the assignor also specifically referenced transfer of the debt either in the assignment of mortgage or in an indorsement on the note.

I have already explained in many different ways that the ownership of the debt is completely dependent upon actual payment of value and the assumption of the risk of nonpayment.  And I have often explained that the last person in the fictitious chain used by enforcers is virtually never the owner of the debt nor an authorized representative of the owner of the debt.

The rule is this: At some point in the fictitious chain, payment was not made because the loan was already sold. This could be as early as before the loan “Closing” to as late as the most recent assignment of mortgage. Note as well that where assignment of mortgage is abandoned at trial the case ceases to become a foreclosure case and converts solely to an action for damages for nonpayment on the note.

Transfer of the note is evidence of transfer of the debt. The matter asserted is that the debt was transferred. If the transferor of the note actually owned the debt, the evidence of transfer of the debt becomes fairly conclusive. But without evidence showing that the transferor owned the debt, no legal presumption should arise. And if the maker of the note challenges (denies) the transfer of the debt, the burden is on the enforcer to establish a chain of evidence starting with the owner of the debt. One way to put this in contention is simply denying that the note is held or owned by the enforcer which makes them prove it. In many cases the enforcer ahs been successful at fabricating a new “original.”

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There is also an issue that is more grounded in law: the delivery of the note signals transfer of the debt because the note is like the title to a car. You become the legal owner when you get it. When you receive the note the presumption arises that the only evidence of the debt has been transferred to the recipient. Whether the note really is the only evidence of the debt is of course subject to dispute and normally not true. Dozens of documents at closing reflect the existence of the debt but not necessarily the owner of the debt. The only real conclusive evidence of the debt is evidence of actual payment by the Payee on the note to or on behalf of the Maker.
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The creative courts dodge (1) the question about whether the prior possessor owned the note or debt and (2) whether the original note was actually physically delivered. In most cases only an image was delivered electronically, the original most likely having been destroyed or “lost.” Other sales of the image of the original note have almost always occurred. However, up to this point in time, the payoff to the underwriter/investment bank is not counted as reducing the receivable from the borrower to zero, even if the amount received is a multiple of the original note. If the investment bank was acting in the interest of investors to whom it sold Trust certificates, then the first money would have been return of capital to the investors and subsequent payoffs would have been shared between the underwriter and the investors.
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The problem of course is that there would be no subsequent sales without the illusion that the loan still exists. So the investment banks created a convoluted trail to make it appear that the receivable (debt) existed while at the same time not titling it as such in the name of anyone. It was a brilliant act of deception. And THAT is the reason why they won’t identify the creditor. And it is the reason why no bank has ever challenged a TILA rescission by filing a suit to vacate the rescission. THERE IS NO CREDITOR, DESIGNATED OR OTHERWISE. Hence all such enforcement claims lack legal standing. TILA rescission strips away the veneer. If the banks actually had a creditor they would have buried anyone using rescission with a simple lawsuit vacating the rescission. They don’t because they can’t.

Why They Sue as Holder and Not as Holder in Due Course

Parties claiming a right to foreclose allege they are the “Holder” and do not allege they are the holder in due course (HDC) because they are ducking the issue of consideration required by both Article 3 and Article 9 of the UCC. So far their strategy of confusion is working. They are directly or impliedly claiming they are the holder of the NOTE. They cannot claim they are the holder of the MORTGAGE, because no such status exists — they either own the mortgage encumbrance because they paid for it or they didn’t. If they didn’t pay for it, they cannot enforce it even if they still can enforce the note.

The framers of the Uniform Commercial Code (UCC) had a plan they executed in Article 3 and Article 9 of the UCC, as adopted by 49 states (Louisiana, excepted). They had four (4) problems to solve.

Consider two possible fact patterns, to wit: first the payee (“lender”) did in fact fund the loan putting cash in the hands of the borrower or paying debts on the borrower’s behalf; second, the payee (“originator”) gets the borrower to sign the note but fails or refuses or never intended to fund the loan of money to the borrower. In the first instance the note is evidence of a real debt whereas in the second instance the note is not evidence of a real debt.

This issue has been obscured by the fact that SOMEONE (“investors”) did fund a loan. The questions posed here is whether the investors received the protection of a note and mortgage and if they didn’t, what is the effect of advancing funds for a loan without getting the required evidence of the loan (Promissory Note) and without getting the collateral (Mortgage) that would ordinarily apply.

The Four Goals

First, the UCC framers wanted to encourage the free flow of commerce by making certain instruments the equivalent of cash. The Payee should be able to use such instruments in trading for goods, services, or credit. This is the promissory note — a written instrument containing an unconditional promise to pay a certain amount. The timing of the payments, the amount, the terms, the method of payment must all be obvious from the face of the note without reference to any outside evidence (parol evidence) that could reduce or eliminate the value of the note. If there are questions or conditions apparent from the face of the instrument, it fails the test of a negotiable instrument or cash equivalent. That means that Article 3, UCC doesn’t apply.

Second they wanted to protect the issuer of the note (the payor) from the effects of fraud, improper lending practices and other deprive lending policies and practices from any false claims for payment on the note. If the Payor (homeowner, borrower) received no benefit from the Payee but was somehow induced to sign the note in anticipation of receiving the benefit, then the Payee should not be able to collect from the Payor. This goal conflicts with the first goal only when the note is sold to an innocent third party for value who had no notice of the defective nature of the origins of the note (Holder in Due Course -HDC).

Thus third, in order to maintain the status of cash equivalent paper, they had to provide a mechanism in which an innocent third party was protected when they advanced money for the purchase of the note without having any notice of the borrower’s defenses. This would allow the buyer to sue the payor (borrower, debtor) and collect free of any potential defenses. The burden of the borrower’s claims would then fall on the borrower to collect damages against the original payee for wrongful acts. (Article 3, UCC, Holder in Due Course -HDC).

And in order to allow all such notes to be enforceable regardless of the circumstances of their origin, any party holding the note (“Holder”) can enforce the note if they have physical possession of the note, even if they paid nothing for it, as long as it is endorsed to them. But if they are a HOLDER and not a HOLDER IN DUE COURSE then they sue subject to all of the borrower’s defenses. The central issue is whether the Holder has paid for the note, in which case they would be in HDC status or if they did not pay for the note, in which case they enforce subject to all borrower’s defenses — including the allegation that the original payee never made the loan.

Fourth was the issue of forfeiture of collateral. This is considered the most extreme remedy under commercial law, analogous to the death penalty in criminal cases. (Article 9, UCC — secured transactions). It is one thing to preserve liquidity in the marketplace by protecting the investment of innocent third parties who purchase negotiable instruments from defenses — and quite another to cause forfeiture of home or property. Here again, the language of Article 3 is used for an HDC — i.e., an assignment of the mortgage is enforceable ONLY if the Assignor paid for it and had no notice of borrower’s defenses.

So they devised a structure in which a bona fide purchaser of the paper without notice of the borrower’s defenses would be called a holder in due course. They could sue the borrower despite wrongful behavior by the original payee on the unconditional promise to pay (the note). In the event of fraud in the sale of the note, the new owner of the note could sue both the seller (Assignor, endorser or indorser).

Then they considered the possibility of wrongful behavior: the issuance of such commercial paper would be a claim, but not negotiable paper — but if it was sold anyway it would be subject to the borrower’s defenses. This allows outside evidence (parol evidence) — which is to say that in this fact pattern, the promise to pay was conditional on the value and effect of the borrower’s defenses. The HOLDER of this instrument need not pay for the sale of the note and need not be ignorant of the borrower’s defenses. This holder could sue both the payor (borrower, debtor) and the party who transferred the note — depending upon the agreement that accompanied the transfer of the note by delivery and indorsement.

The party who accepts indorsement without paying for the note or even knowing of potential borrower defenses can still enforce the note, but unlike the the HOLDER IN DUE COURSE, the Payor (Borrower) could raise all defenses to the original transaction. The UCC Article 3 calls this a holder. A holder need not purchase the note and may have actual knowledge of the borrower’s defenses but can still sue the payor (borrower) for the principal amount due on the unconditional promise to pay.

I have noticed that most judicial foreclosures are either in rem (foreclosures only) or the claim on the note is that the Plaintiff is a “holder.” If they have possession and it is indorsed, they are probably a holder entitled to enforce the note. But the Defendant can raise all available defenses just as he or she would do if the fight was with the originator of the note execution. And nothing is a better defense than the distinction between being the originator of the note execution and the originator of the loan. The confusion over the term “originator” has allowed millions of foreclosures to be completed despite the fact that the “holder” neither paid for the note nor could they claim they were ignorant of the borrower’s defenses.

This confusion has led most courts to look at Article 3, UCC, instead of Article 9, UCC. Neither allow the claimant to sue on either the note or the mortgage without having paid for the assignment of the mortgage or delivery of the note, if the holder has actual notice of borrower’s defenses. In most cases the claimant either has the knowledge of the fraud and predatory practices at closing or is a made to order controlled company of a real party who has such knowledge.

In conclusion, borrowers should prevail in foreclosure litigation in situations where the claimant is unable to prove the identity of the actual lender who advanced funds, or where the claimant has failed to purchase the mortgage.

Based upon vast quantities of information in the public domain including investor lawsuits, insurer lawsuits and government agency lawsuits (all alleging FRAUD and mismanagement of funds) against broker dealers who sold mortgage bonds, it seems highly likely that in the 96% of all loans between 2001-2009 that are subject to claims of securitization three things are true:

(1) the securitization plan was never followed in most cases thus making the investors direct lenders without benefit of a note or mortgage and

(2) none of the parties “holding” paper possess any of the qualities of a party who could have standing to foreclose and

(3) claims still exist on the notes, even though they were not supported by consideration but those claims are unsecured and subject to all defenses that could have been raised against the originator.

Neil F Garfield, Esq.

For further information call 520-405-1688, or 954-495-9867. Do not use the above information without consulting an attorney licensed in the jurisdiction in which your property is located and who knows all the facts of your case. The above article is a general description and may not apply to your case.

UCC: NO NAME, NO RIGHTS — IMPERFECT LIEN IF ACTUAL SECURITY HOLDER NOT NAMED

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EDITOR’S NOTE: FROM ARIZONA LAW, BUT JUST LIKE ANY OTHER STATE, it only makes sense that you neither have a debtor nor a creditor if they are not named or sufficiently described for identification. If you can’t identify the debtor or obligor, then you can’t get paid. If you can’t identify the creditor or obligee, then there is nobody to pay — and more importantly, nobody from whom you can obtain a release of lien.

So what is the effect of a mortgage that fails to identify the creditor by name or description? The answer is obvious. It is the same as a deed signed by someone who isn’t the owner of the property. It means nothing.

The mortgage deed is a wild deed if it doesn’t comply with the basic requirements of law as to identification of the debtor, the property and the creditor.

The banks want us to change that so they can stick in any old entity and foreclose on property — thus stealing from both the investor/lenders and the homeowner/borrowers. If the banks win, how will you ever know whether you are really getting title if a nominee, even if named as nominee, is used on the document without disclosing the principal?

We have 100 million real estate transactions in which title defects were created by this loose method of naming “bankruptcy remote” vehicles to protect the Wall Street players from lending violations and violations of property law. But the same layer that protects them also destroys the security. If a mortgage doesn’t give you the name and address of the lender from whom you can get a release, then it isn’t a lien. It doesn’t attach to the land.

Here are the Arizona Statutes adopting the UCC to prove it. See recent case law from Federal and State Courts, right up to State Supreme Courts. It’s unanimous: you can’t foreclose unless you OWN the obligation, not merely hold it. You might be able to enforce the obligation to repay separately as merely a holder but you can’t foreclose.

47-1103. Construction to promote purposes and policies; applicability of supplemental principles of law

A. This title must be liberally construed and applied to promote its underlying purposes and policies, which are:

1. To simplify, clarify and modernize the law governing commercial transactions;

2. To permit the continued expansion of commercial practices through custom, usage and agreement of the parties; and

3. To make uniform the law among the various jurisdictions.

B. Unless displaced by the particular provisions of this title, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy and other validating or invalidating cause supplement its provisions.

47-1201. General definitions

A. Unless the context otherwise requires, words or phrases defined in this section, or in the additional definitions contained in other chapters of this title that apply to particular chapters or parts thereof, have the meanings stated.

B. Subject to definitions contained in other chapters of this title that apply to particular chapters or parts thereof:

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

2. “Aggrieved party” means a party entitled to pursue a remedy.

3. “Agreement”, as distinguished from “contract”, means the bargain of the parties in fact, as found in their language or inferred from other circumstances, including course of performance, course of dealing or usage of trade as provided in section 47-1303.

4. “Bank” means a person engaged in the business of banking and includes a savings bank, savings and loan association, credit union and trust company.

5. “Bearer” means a person in control of a negotiable electronic document of title or a person in possession of a negotiable instrument, negotiable tangible document of title or certificated security that is payable to bearer or indorsed in blank.

6. “Bill of lading” means a document of title evidencing the receipt of goods for shipment issued by a person engaged in the business of directly or indirectly transporting or forwarding goods. The term does not include a warehouse receipt.

7. “Branch” includes a separately incorporated foreign branch of a bank.

8. “Burden of establishing” a fact means the burden of persuading the trier of fact that the existence of the fact is more probable than its nonexistence.

9. “Buyer in ordinary course of business” means a person that buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods, and in the ordinary course from a person, other than a pawnbroker, in the business of selling goods of that kind. A person buys goods in the ordinary course if the sale to the person comports with the usual or customary practices in the kind of business in which the seller is engaged or with the seller’s own usual or customary practices. A person that sells oil, gas or other minerals at the wellhead or minehead is a person in the business of selling goods of that kind. A buyer in ordinary course of business may buy for cash, by exchange of other property or on secured or unsecured credit, and may acquire goods or documents of title under a preexisting contract for sale. Only a buyer that takes possession of the goods or has a right to recover the goods from the seller under chapter 2 of this title may be a buyer in ordinary course of business. Buyer in ordinary course of business does not include a person that acquires goods in a transfer in bulk or as security for or in total or partial satisfaction of a money debt.

10. “Conspicuous”, with reference to a term, means so written, displayed or presented that a reasonable person against which it is to operate ought to have noticed it. Whether a term is conspicuous or not is a decision for the court. Conspicuous terms include the following:

(a) A heading in capitals equal to or greater in size than the surrounding text, or in contrasting type, font or color to the surrounding text of the same or lesser size; and

(b) Language in the body of a record or display in larger type than the surrounding text, or in contrasting type, font or color to the surrounding text of the same size, or set off from surrounding text of the same size by symbols or other marks that call attention to the language.

11. “Consumer” means an individual who enters into a transaction primarily for personal, family or household purposes.

12. “Contract”, as distinguished from “agreement”, means the total legal obligation that results from the parties’ agreement as determined by this title as supplemented by any other applicable laws.

13. “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.

14. “Defendant” includes a person in the position of defendant in a counterclaim, cross-claim or third-party claim.

15. “Delivery”, with respect to an electronic document of title, means voluntary transfer of control, and with respect to an instrument, a tangible document of title or chattel paper means voluntary transfer of possession.

16. “Document of title” means a record:

(a) That in the regular course of business or financing is treated as adequately evidencing that the person in possession or control of the record is entitled to receive, control, hold and dispose of the record and the goods the record covers; and

(b) That purports to be issued by or addressed to a bailee and to cover goods in the bailee’s possession that are either identified or are fungible portions of an identified mass. The term includes a bill of lading, transport document, dock warrant, dock receipt, warehouse receipt and order for delivery of goods. An electronic document of title means a document of title evidenced by a record consisting of information stored in an electronic medium. A tangible document of title means a document of title evidenced by a record consisting of information that is inscribed on a tangible medium.

17. “Fault” means a default, breach or wrongful act or omission.

18. “Fungible goods” means:

(a) Goods of which any unit, by nature or usage of trade, is the equivalent of any other like unit; or

(b) Goods that by agreement are treated as equivalent.

19. “Genuine” means free of forgery or counterfeiting.

20. “Good faith” means honesty in fact in the conduct or transaction concerned.

21. “Holder” means:

(a) The person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession;

(b) The person in possession of a negotiable tangible document of title if the goods are deliverable either to bearer or to the order of the person in possession; or

(c) The person in control of a negotiable electronic document of title.

22. “Insolvency proceeding” includes an assignment for the benefit of creditors or other proceeding intended to liquidate or rehabilitate the estate of the person involved.

23. “Insolvent” means:

(a) Having generally ceased to pay debts in the ordinary course of business other than as a result of bona fide dispute;

(b) Being unable to pay debts as they become due; or

(c) Being insolvent within the meaning of federal bankruptcy law.

24. “Money” means a medium of exchange currently authorized or adopted by a domestic or foreign government. The term includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more countries.

25. “Organization” means a person other than an individual.

26. “Party”, as distinguished from “third party”, means a person that has engaged in a transaction or made an agreement subject to this title.

27. “Person” means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, government, governmental subdivision, agency or instrumentality, public corporation or any other legal or commercial entity.

28. “Present value” means the amount as of a date certain of one or more sums payable in the future, discounted to the date certain by use of either an interest rate specified by the parties if that rate is not manifestly unreasonable at the time the transaction is entered into or, if an interest rate is not so specified, a commercially reasonable rate that takes into account the facts and circumstances at the time the transaction is entered into.

29. “Purchase” means taking by sale, lease, discount, negotiation, mortgage, pledge, lien, security interest, issue or reissue, gift or any other voluntary transaction creating an interest in property.

30. “Purchaser” means a person that takes by purchase.

31. “Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

32. “Remedy” means any remedial right to which an aggrieved party is entitled with or without resort to a tribunal.

33. “Representative” means a person empowered to act for another, including an agent, an officer of a corporation or association and a trustee, executor or administrator of an estate.

34. “Right” includes remedy.

35. “Security interest” means an interest in personal property or fixtures that secures payment or performance of an obligation. Security interest includes any interest of a consignor and a buyer of accounts, chattel paper, a payment intangible or a promissory note in a transaction that is subject to chapter 9 of this title. Security interest does not include the special property interest of a buyer of goods on identification of those goods to a contract for sale under Section 47-2401, but a buyer may also acquire a security interest by complying with chapter 9 of this title. Except as otherwise provided in Section 47-2505, the right of a seller or lessor of goods under chapter 2 or 2A of this title to retain or acquire possession of the goods is not a security interest, but a seller or lessor may also acquire a security interest by complying with chapter 9 of this title. The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer under section 47-2401 is limited in effect to a reservation of a security interest. Whether a transaction in the form of a lease creates a security interest is determined pursuant to section 47-1203.

36. “Send” in connection with a writing, record or notice means:

(a) 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 is none to any address reasonable under the circumstances; or

(b) In any other way to cause to be received any record or notice within the time it would have arrived if properly sent.

37. “Signed” includes using any symbol executed or adopted with present intention to adopt or accept a writing.

38. “State” means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands or any territory or insular possession subject to the jurisdiction of the United States.

39. “Surety” includes a guarantor or other secondary obligor.

40. “Term” means a portion of an agreement that relates to a particular matter.

41. “Unauthorized signature” means a signature made without actual, implied or apparent authority. The term includes a forgery.

42. “Warehouse receipt” means a document of title issued by a person engaged in the business of storing goods for hire.

43. “Writing” includes printing, typewriting or any other intentional reduction to tangible form. “Written” has a corresponding meaning.

47-1202. Notice; knowledge

A. Subject to subsection F, a person has “notice” of a fact if the person:

1. Has actual knowledge of it;

2. Has received a notice or notification of it; or

3. From all the facts and circumstances known to the person at the time in question, has reason to know that it exists.

B. “Knowledge” means actual knowledge. “Knows” has a corresponding meaning.

c. “Discover”, “learn” or words of similar import refer to knowledge rather than to reason to know.

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

E. Subject to subsection F, a person “receives” a notice or notification when:

1. It comes to that person’s attention; or

2. It is duly delivered in a form reasonable under the circumstances at the place of business through which the contract was made or at another location held out by that person as the place for receipt of such communications.

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

47-1204. Value

Except as otherwise provided in chapters 3, 4 and 5 of this title, a person gives value for rights if the person acquires them:

1. In return for a binding commitment to extend credit or for the extension of immediately available credit, whether or not drawn upon and whether or not a charge-back is provided for in the event of difficulties in collection;

2. As security for, or in total or partial satisfaction of, a preexisting claim;

3. By accepting delivery under a preexisting contract for purchase; or

4. In return for any consideration sufficient to support a simple contract.

47-1206. Presumptions

Whenever this title creates a “presumption” with respect to a fact, or provides that a fact is “presumed”, the trier of fact must find the existence of the fact unless and until evidence is introduced that supports a finding of its nonexistence.

47-1302. Variation by agreement

A. Except as otherwise provided in subsection B or elsewhere in this title, the effect of provisions of this title may be varied by agreement.

B. The obligations of good faith, diligence, reasonableness and care prescribed by this title may not be disclaimed by agreement. The parties, by agreement, may determine the standards by which the performance of those obligations is to be measured if those standards are not manifestly unreasonable. Whenever this title requires an action to be taken within a reasonable time, a time that is not manifestly unreasonable may be fixed by agreement.

C. The presence in certain provisions of this title of the phrase “unless otherwise agreed”, or words of similar import, does not imply that the effect of other provisions may not be varied by agreement under this section.

47-1305. Remedies to be liberally administered

A. The remedies provided by this title must be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special damages nor penal damages may be had except as specifically provided in this title or by other rule of law.

B. Any right or obligation declared by this title is enforceable by action unless the provision declaring it specifies a different and limited effect.

47-1306. Waiver or renunciation of claim or right after breach

A claim or right arising out of an alleged breach may be discharged in whole or in part without consideration by agreement of the aggrieved party in an authenticated record.

47-1307. Prima facie evidence by third party documents

A document in due form purporting to be a bill of lading, policy or certificate of insurance, official weigher’s or inspector’s certificate, consular invoice or any other document authorized or required by the contract to be issued by a third party is prima facie evidence of its own authenticity and genuineness and of the facts stated in the document by the third party.

47-3301. Person entitled to enforce instrument

“Person entitled to enforce” an instrument means the holder of the instrument, a nonholder in possession of the instrument who has the rights of a holder or a person not in possession of the instrument who is entitled to enforce the instrument pursuant to section 47-3309 or section 47-3418, subsection D. A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

47-3302. Holder in due course

A. Subject to subsection C of this section and section 47-3106, subsection D, “holder in due course” means the holder of an instrument if:

1. The instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity; and

2. The holder took the instrument:

(a) For value;

(b) In good faith;

(c) Without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series;

(d) Without notice that the instrument contains an unauthorized signature or has been altered;

(e) Without notice of any claim to the instrument described in section 47-3306; and

(f) Without notice that any party has a defense or claim in recoupment described in section 47-3305, subsection A.

B. Notice of discharge of a party, other than discharge in an insolvency proceeding, is not notice of a defense under subsection A of this section, but discharge is effective against a person who became a holder in due course with notice of the discharge. Public filing or recording of a document does not of itself constitute notice of a defense, claim in recoupment or claim to the instrument.

C. Except to the extent a transferor or predecessor in interest has rights as a holder in due course, a person does not acquire rights of a holder in due course of an instrument taken:

1. By legal process or by purchase in an execution, bankruptcy or creditor’s sale or similar proceeding;

2. By purchase as part of a bulk transaction not in ordinary course of business of the transferor; or

3. As the successor in interest to an estate or other organization.

D. If, under section 47-3303, subsection A, paragraph 1, the promise of performance that is the consideration for an instrument has been partially performed, the holder may assert rights as a holder in due course of the instrument only to the fraction of the amount payable under the instrument equal to the value of the partial performance divided by the value of the promised performance.

E. If the person entitled to enforce an instrument has only a security interest in the instrument and the person obliged to pay the instrument has a defense, claim in recoupment or claim to the instrument that may be asserted against the person who granted the security interest, the person entitled to enforce the instrument may assert rights as a holder in due course only to an amount payable under the instrument which, at the time of enforcement of the instrument, does not exceed the amount of the unpaid obligation secured.

F. To be effective, notice must be received at a time and in a manner that gives a reasonable opportunity to act on it.

G. This section is subject to any law limiting status as a holder in due course in particular classes of transactions.

47-3303. Value and consideration

A. An instrument is issued or transferred for value if:

1. The instrument is issued or transferred for a promise of performance, to the extent the promise has been performed;

2. The transferee acquires a security interest or other lien in the instrument other than a lien obtained by judicial proceeding;

3. The instrument is issued or transferred as payment of, or as security for, an antecedent claim against any person, whether or not the claim is due;

4. The instrument is issued or transferred in exchange for a negotiable instrument; or

5. The instrument is issued or transferred in exchange for the incurring of an irrevocable obligation to a third party by the person taking the instrument.

B. “Consideration” means any consideration sufficient to support a simple contract. The drawer or maker of an instrument has a defense if the instrument is issued without consideration. If an instrument is issued for a promise of performance, the issuer has a defense to the extent performance of the promise is due and the promise has not been performed. If an instrument is issued for value as stated in subsection A, the instrument is also issued for consideration.

47-3306. Claims to an instrument

A person taking an instrument, other than a person having rights of a holder in due course, is subject to a claim of a property or possessory right in the instrument or its proceeds, including a claim to rescind a negotiation and to recover the instrument or its proceeds. A person having rights of a holder in due course takes free of the claim to the instrument.

47-3308. Proof of signatures and status as holder in due course

A. In an action with respect to an instrument, the authenticity of, and authority to make, each signature on the instrument is admitted unless specifically denied in the pleadings. If the validity of a signature is denied in the pleadings, the burden of establishing validity is on the person claiming validity, but the signature is presumed to be authentic and authorized unless the action is to enforce the liability of the purported signer and the signer is dead or incompetent at the time of trial of the issue of validity of the signature. If an action to enforce the instrument is brought against a person as the undisclosed principal of a person who signed the instrument as a party to the instrument, the plaintiff has the burden of establishing that the defendant is liable on the instrument as a represented person under section 47-3402, subsection A.

B. If the validity of signatures is admitted or proved and there is compliance with subsection A of this section, a plaintiff producing the instrument is entitled to payment if the plaintiff proves entitlement to enforce the instrument under section 47-3301, unless the defendant proves a defense or claim in recoupment. If a defense or claim in recoupment is proved, the right to payment of the plaintiff is subject to the defense or claim, except to the extent the plaintiff proves that the plaintiff has rights of a holder in due course which are not subject to the defense or claim.

47-3401. Signature

A. A person is not liable on an instrument unless:

1. The person signed the instrument; or

2. The person is represented by an agent or representative who signed the instrument and the signature is binding on the represented person under section 47-3402.

B. A signature may be made:

1. Manually or by means of a device or machine; and

2. By the use of any name, including a trade or assumed name, or by a word, mark or symbol executed or adopted by a person with present intention to authenticate a writing.

47-3402. Signature by representative

A. If a person acting, or purporting to act, as a representative signs an instrument by signing either the name of the represented person or the name of the signer, the represented person is bound by the signature to the same extent the represented person would be bound if the signature were on a simple contract. If the represented person is bound, the signature of the representative is the “authorized signature of the represented person” and the represented person is liable on the instrument, whether or not identified in the instrument.

B. If a representative signs the name of the representative to an instrument and the signature is an authorized signature of the represented person, the following rules apply:

1. If the form of the signature shows unambiguously that the signature is made on behalf of the represented person who is identified in the instrument, the representative is not liable on the instrument.

2. Subject to subsection C, if the form of the signature does not show unambiguously that the signature is made in a representative capacity or the represented person is not identified in the instrument, the representative is liable on the instrument to a holder in due course that took the instrument without notice that the representative was not intended to be liable on the instrument. With respect to any other person, the representative is liable on the instrument unless the representative proves that the original parties did not intend the representative to be liable on the instrument.

C. If a representative signs the name of the representative as drawer of a check without indication of the representative status and the check is payable from an account of the represented person who is identified on the check, the signer is not liable on the check if the signature is an authorized signature of the represented person.

47-3403. Unauthorized signature

A. Unless otherwise provided in this chapter or chapter 4 of this title, an unauthorized signature is ineffective except as the signature of the unauthorized signer in favor of a person who in good faith pays the instrument or takes it for value. An unauthorized signature may be ratified for all purposes of this chapter.

B. If the signature of more than one person is required to constitute the authorized signature of an organization, the signature of the organization is unauthorized if one of the required signatures is lacking.

C. The civil or criminal liability of a person who makes an unauthorized signature is not affected by any provision of this chapter which makes the unauthorized signature effective for the purposes of this chapter.

47-3404. Impostors; fictitious payees

A. If an impostor, by use of the mails or otherwise, induces the issuer of an instrument to issue the instrument to the impostor, or to a person acting in concert with the impostor, by impersonating the payee of the instrument or a person authorized to act for the payee, an indorsement of the instrument by any person in the name of the payee is effective as the indorsement of the payee in favor of a person who, in good faith, pays the instrument or takes it for value or for collection.

B. If a person whose intent determines to whom an instrument is payable (section 47-3110, subsection A or B) does not intend the person identified as payee to have any interest in the instrument or the person identified as payee of an instrument is a fictitious person, the following rules apply until the instrument is negotiated by special indorsement:

1. Any person in possession of the instrument is its holder.

2. An indorsement by any person in the name of the payee stated in the instrument is effective as the indorsement of the payee in favor of a person who, in good faith, pays the instrument or takes it for value or for collection.

C. Under subsection A or B of this section, an indorsement is made in the name of a payee if:

1. It is made in a name substantially similar to that of the payee; or

2. The instrument, whether or not indorsed, is deposited in a depositary bank to an account in a name substantially similar to that of the payee.

D. With respect to an instrument to which subsection A or B of this section applies, if a person paying the instrument or taking it for value or for collection fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss resulting from payment of the instrument, the person bearing the loss may recover from the person failing to exercise ordinary care to the extent the failure to exercise ordinary care contributed to the loss.

47-3405. Employer’s responsibility for fraudulent indorsement by employee

A. In this section:

1. “Employee” includes an independent contractor and employee of an independent contractor retained by the employer.

2. “Fraudulent indorsement” means:

(a) In the case of an instrument payable to the employer, a forged indorsement purporting to be that of the employer; or

(b) In the case of an instrument with respect to which the employer is the issuer, a forged indorsement purporting to be that of the person identified as payee.

3. “Responsibility” with respect to instruments means authority to:

(a) Sign or indorse instruments on behalf of the employer;

(b) Process instruments received by the employer for bookkeeping purposes, for deposit to an account or for other disposition;

(c) Prepare or process instruments for issue in the name of the employer;

(d) Supply information determining the names or addresses of payees of instruments to be issued in the name of the employer;

(e) Control the disposition of instruments to be issued in the name of the employer; or

(f) Act otherwise with respect to instruments in a responsible capacity.

Responsibility does not include authority that merely allows an employee to have access to instruments or blank or incomplete instrument forms that are being stored or transported or are part of incoming or outgoing mail, or similar access.

B. For the purpose of determining the rights and liabilities of a person who, in good faith, pays an instrument or takes it for value or for collection, if an employer entrusted an employee with responsibility with respect to the instrument and the employee or a person acting in concert with the employee makes a fraudulent indorsement of the instrument, the indorsement is effective as the indorsement of the person to whom the instrument is payable if it is made in the name of that person. If the person paying the instrument or taking it for value or for collection fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss resulting from the fraud, the person bearing the loss may recover from the person failing to exercise ordinary care to the extent the failure to exercise ordinary care contributed to the loss.

C. Under subsection B, an indorsement is made in the name of the person to whom an instrument is payable if:

1. It is made in a name substantially similar to the name of that person; or

2. The instrument, whether or not indorsed, is deposited in a depositary bank to an account in a name substantially similar to the name of that person

47-3406. Negligence contributing to forged signature or alteration of instrument

A. A person whose failure to exercise ordinary care substantially contributes to an alteration of an instrument or to the making of a forged signature on an instrument is precluded from asserting the alteration or the forgery against a person who, in good faith, pays the instrument or takes it for value or for collection.

B. Under subsection A, if the person asserting the preclusion fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss, the loss is allocated between the person precluded and the person asserting the preclusion according to the extent to which the failure of each to exercise ordinary care contributed to the loss.

C. Under subsection A, the burden of proving failure to exercise ordinary care is on the person asserting the preclusion. Under subsection B, the burden of proving failure to exercise ordinary care is on the person precluded.

47-3412. Obligation of issuer of note or cashier’s check

The issuer of a note or cashier’s check or other draft drawn on the drawer is obliged to pay the instrument:

1. According to its terms at the time it was issued or, if not issued, at the time it first came into possession of a holder; or

2. If the issuer signed an incomplete instrument, according to its terms when completed, to the extent stated in sections 47-3115 and 47-3407. The obligation is owed to a person entitled to enforce the instrument or to an indorser who paid the instrument under section 47-3415.

47-8201. Issuer

A. With respect to an obligation on or a defense to a security, an “issuer” includes a person that:

1. Places or authorizes the placing of its name on a security certificate, other than as authenticating trustee, registrar, transfer agent, or the like, to evidence a share, participation or other interest in its property or in an enterprise or to evidence its duty to perform an obligation represented by the certificate;

2. Creates a share, participation or other interest in its property or in an enterprise, or undertakes an obligation, that is an uncertificated security;

3. Directly or indirectly creates a fractional interest in its rights or property, if the fractional interest is represented by a security certificate; or

4. Becomes responsible for, or in place of, another person described as an issuer in this section.

B. With respect to an obligation on or defense to a security, a guarantor is an issuer to the extent of its guaranty, whether or not its obligation is noted on a security certificate.

C. With respect to a registration of a transfer, issuer means a person on whose behalf transfer books are maintained.

47-9102. Definitions and index of definitions

A. In this chapter, unless the context otherwise requires:

1. “Accession” means goods that are physically united with other goods in such a manner that the identity of the original goods is not lost.

2. “Account”, except as used in “account for”, means a right to payment of a monetary obligation, whether or not earned by performance, for property that has been or is to be sold, leased, licensed, assigned or otherwise disposed of, for services rendered or to be rendered, for a policy of insurance issued or to be issued, for a secondary obligation incurred or to be incurred, for energy provided or to be provided, for the use or hire of a vessel under a charter or other contract, arising out of the use of a credit or charge card or information contained on or for use with the card or as winnings in a lottery or other game of chance operated or sponsored by a state, a governmental unit of a state or a person licensed or authorized to operate the game by a state or governmental unit of a state. Account includes health-care-insurance receivables. Account does not include rights to payment evidenced by chattel paper or an instrument, commercial tort claims, deposit accounts, investment property, letter-of-credit rights or letters of credit or rights to payment for money or funds advanced or sold, other than rights arising out of the use of a credit or charge card or information contained on or for use with the card.

3. “Account debtor” means a person obligated on an account, chattel paper or general intangible but does not include persons obligated to pay a negotiable instrument, even if the instrument constitutes part of chattel paper.

4. “Accounting”, except as used in “accounting for”, means a record:

(a) Authenticated by a secured party;

(b) Indicating the aggregate unpaid secured obligations as of a date not more than thirty-five days earlier or thirty-five days later than the date of the record; and

(c) Identifying the components of the obligations in reasonable detail.

5. “Agricultural lien” means an interest, other than a security interest, in farm products:

(a) That secures payment or performance of an obligation for:

(i) Goods or services furnished in connection with a debtor’s farming operation; or

(ii) Rent on real property leased by a debtor in connection with its farming operation;

(b) That is created by statute in favor of a person that:

(i) In the ordinary course of its business furnished goods or services to a debtor in connection with a debtor’s farming operation; or

(ii) Leased real property to a debtor in connection with the debtor’s farming operation; and

(c) Whose effectiveness does not depend on the person’s possession of the personal property.

6. “As-extracted collateral” means:

(a) Oil, gas or other minerals that are subject to a security interest that:

(i) Is created by a debtor having an interest in the minerals before extraction; and

(ii) Attaches to the minerals as extracted; or

(b) Accounts arising out of the sale at the wellhead or minehead of oil, gas or other minerals in which the debtor had an interest before extraction.

7. “Authenticate” means:

(a) To sign; or

(b) To execute or otherwise adopt a symbol, or encrypt or similarly process a record in whole or in part, with the present intent of the authenticating person to identify the person and adopt or accept a record.

8. “Bank” means an organization that is engaged in the business of banking. Bank includes savings banks, savings and loan associations, credit unions and trust companies.

9. “Cash proceeds” means proceeds that are money, checks, deposit accounts or the like.

10. “Certificate of title” means a certificate of title with respect to which a statute provides for the security interest in question to be indicated on the certificate as a condition or result of the security interest’s obtaining priority over the rights of a lien creditor with respect to the collateral.

11. “Chattel paper” means a record or records that evidence both a monetary obligation and a security interest in specific goods, a security interest in specific goods and software used in the goods, a security interest in specific goods and license of software used in the goods, a lease of specific goods or a lease of specific goods and license of software used in the goods. In this paragraph, “monetary obligation” means a monetary obligation secured by the goods or owed under a lease of the goods and includes a monetary obligation with respect to software used in the goods. Chattel paper does not include charters or other contracts involving the use or hire of a vessel or records that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card. If a transaction is evidenced by records that include an instrument or series of instruments, the group of records taken together constitutes chattel paper.

12. “Collateral” means the property subject to a security interest or agricultural lien. Collateral includes:

(a) Proceeds to which a security interest attaches;

(b) Accounts, chattel paper, payment intangibles and promissory notes that have been sold; and

(c) Goods that are the subject of a consignment.

13. “Commercial tort claim” means a claim arising in tort with respect to which:

(a) The claimant is an organization; or

(b) The claimant is an individual and the claim:

(i) Arose in the course of the claimant’s business or profession; and

(ii) Does not include damages arising out of personal injury to or the death of an individual.

14. “Commodity account” means an account maintained by a commodity intermediary in which a commodity contract is carried for a commodity customer.

15. “Commodity contract” means a commodity futures contract, an option on a commodity futures contract, a commodity option or another contract if the contract or option is:

(a) Traded on or subject to the rules of a board of trade that has been designated as a contract market for such a contract pursuant to federal commodities laws; or

(b) Traded on a foreign commodity board of trade, exchange or market, and is carried on the books of a commodity intermediary for a commodity customer.

16. “Commodity customer” means a person for which a commodity intermediary carries a commodity contract on its books.

17. “Commodity intermediary” means a person that:

(a) Is registered as a futures commission merchant under federal commodities law; or

(b) In the ordinary course of its business provides clearance or settlement services for a board of trade that has been designated as a contract market pursuant to federal commodities law.

18. “Communicate” means:

(a) To send a written or other tangible record;

(b) To transmit a record by any means agreed on by the persons sending and receiving the record; or

(c) In the case of transmission of a record to or by a filing office, to transmit a record by any means prescribed by filing office rule.

19. “Consignee” means a merchant to which goods are delivered in a consignment.

20. “Consignment” means a transaction, regardless of its form, in which a person delivers goods to a merchant for the purpose of sale and:

(a) The merchant:

(i) Deals in goods of that kind under a name other than the name of the person making delivery;

(ii) Is not an auctioneer; and

(iii) Is not generally known by its creditors to be substantially engaged in selling the goods of others;

(b) With respect to each delivery, the aggregate value of the goods is one thousand dollars or more at the time of delivery;

(c) The goods are not consumer goods immediately before delivery; and

(d) The transaction does not create a security interest that secures an obligation.

21. “Consignor” means a person that delivers goods to a consignee in a consignment.

22. “Consumer debtor” means a debtor in a consumer transaction.

23. “Consumer goods” means goods that are used or bought for use primarily for personal, family or household purposes.

24. “Consumer goods transaction” means a consumer transaction in which:

(a) An individual incurs an obligation primarily for personal, family or household purposes; and

(b) A security interest in consumer goods secures the obligation.

25. “Consumer obligor” means an obligor who is an individual and who incurred the obligation as part of a transaction entered into primarily for personal, family or household purposes.

26. “Consumer transaction” means a transaction in which an individual incurs an obligation primarily for personal, family or household purposes, a security interest secures the obligation and the collateral is held or acquired primarily for personal, family or household purposes. Consumer transaction includes consumer goods transactions.

27. “Continuation statement” means an amendment of a financing statement that:

(a) Identifies, by its file number, the initial financing statement to which it relates; and

(b) Indicates that it is a continuation statement for, or that it is filed to continue the effectiveness of, the identified financing statement.

28. “Debtor” means:

(a) A person having an interest, other than a security interest or other lien, in the collateral, whether or not the person is an obligor;

(b) A seller of accounts, chattel paper, payment intangibles or promissory notes; or

(c) A consignee.

29. “Deposit account” means a demand, time, savings, passbook or similar account maintained with a bank. Deposit account does not include investment property or accounts evidenced by an instrument.

30. “Document” means a document of title or a receipt of the type described in section 47-7201, subsection B.

31. “Electronic chattel paper” means chattel paper evidenced by a record or records consisting of information stored in an electronic medium.

32. “Encumbrance” means a right, other than an ownership interest, in real property. Encumbrance includes mortgages and other liens on real property.

33. “Equipment” means goods other than inventory, farm products or consumer goods.

34. “Farm products” means goods, other than standing timber, with respect to which the debtor is engaged in a farming operation and that are:

(a) Crops grown, growing or to be grown, including:

(i) Crops produced on trees, vines and bushes; and

(ii) Aquatic goods produced in aquacultural operations;

(b) Livestock, born or unborn, including aquatic goods produced in aquacultural operations;

(c) Supplies used or produced in a farming operation; or

(d) Products of crops or livestock in their unmanufactured states.

35. “Farming operation” means raising, cultivating, propagating, fattening, grazing or any other farming, livestock or aquacultural operation.

36. “File number” means the number assigned to an initial financing statement pursuant to section 47-9519, subsection A.

37. “Filing office” means an office designated in section 47-9501 as the place to file a financing statement.

38. “Filing office rule” means a rule adopted pursuant to section 47-9526.

39. “Financing statement” means a record or records composed of an initial financing statement and any filed record relating to the initial financing statement.

40. “Fixture filing” means the filing of a financing statement covering goods that are or are to become fixtures and satisfying section 47-9502, subsections A and B. Fixture filing includes the filing of a financing statement covering goods of a transmitting utility that are or are to become fixtures.

41. “Fixtures” means goods that have become so related to particular real property that an interest in them arises under real property law.

42. “General intangible” means any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money and oil, gas or other minerals before extraction. General intangible includes payment intangibles and software.

43. “Good faith” means honesty in fact and the observance of reasonable commercial standards of fair dealing.

44. “Goods” means all things that are movable when a security interest attaches.

(a) Goods includes:

(i) Fixtures;

(ii) Standing timber that is to be cut and removed under a conveyance or contract for sale;

(iii) The unborn young of animals;

(iv) Crops grown, growing or to be grown, even if the crops are produced on trees, vines or bushes; and

(v) Manufactured homes.

(b) Goods also includes a computer program embedded in goods and any supporting information provided in connection with a transaction relating to the program if:

(i) The program is associated with the goods in such a manner that it customarily is considered part of the goods; or

(ii) By becoming the owner of the goods, a person acquires a right to use the program in connection with the goods.

(c) Goods does not include a computer program embedded in goods that consist solely of the medium in which the program is embedded.

(d) Goods also does not include accounts, chattel paper, commercial tort claims, deposit accounts, documents, general intangibles, instruments, investment property, letter-of-credit rights, letters of credit, money, or oil, gas or other minerals before extraction.

45. “Governmental unit” means a subdivision, agency, department, county, parish, municipality or other unit of the government of the United States, a state or a foreign country. Governmental unit includes an organization having a separate corporate or legal existence if the organization is eligible to issue or incur obligations the interest on which is excluded from gross income for federal income tax purposes.

46. “Health-care-insurance receivable” means an interest in or claim under a policy of insurance that is a right to payment of a monetary obligation for health care goods or services provided.

47. “Instrument” means a negotiable instrument or any other writing that evidences a right to the payment of a monetary obligation, is not itself a security agreement or lease and is of a type that in the ordinary course of business is transferred by delivery with any necessary indorsement or assignment. Instrument does not include:

(a) Investment property;

(b) Letters of credit; or

(c) Writings that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card.

48. “Inventory” means goods, other than farm products, that:

(a) Are leased by a person as lessor;

(b) Are held by a person for sale or lease or to be furnished under a contract of service;

(c) Are furnished by a person under a contract of service; or

(d) Consist of raw materials, work in process or materials used or consumed in a business.

49. “Investment property” means a security, whether certificated or uncertificated, security entitlement, securities account, commodity contract or commodity account.

50. “Jurisdiction of organization”, with respect to a registered organization, means the jurisdiction under whose law the organization is organized.

51. “Letter-of-credit right” means a right to payment or performance under a letter of credit, whether or not the beneficiary has demanded or is at the time entitled to demand payment or performance. Letter-of-credit right does not include the right of a beneficiary to demand payment or performance under a letter of credit.

52. “Lien creditor” means:

(a) A creditor that has acquired a lien on the property involved by attachment, levy or the like;

(b) An assignee for benefit of creditors from the time of assignment;

(c) A trustee in bankruptcy from the date of the filing of the petition; or

(d) A receiver in equity from the time of appointment.

53. “Manufactured home” means a structure that is transportable in one or more sections and that, in the traveling mode, is eight body feet or more in width or forty body feet or more in length, or, when erected on site, is three hundred twenty or more square feet, and that is built on a permanent chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required utilities, and includes the plumbing, heating, air conditioning and electrical systems contained therein. Manufactured home includes any structure that meets all of the requirements of this paragraph except the size requirements and with respect to which the manufacturer voluntarily files a certification required by the United States secretary of housing and urban development and complies with the standards established under title 42 of the United States Code.

54. “Manufactured home transaction” means a secured transaction:

(a) That creates a purchase money security interest in a manufactured home, other than a manufactured home held as inventory; or

(b) In which a manufactured home, other than a manufactured home held as inventory, is the primary collateral.

55. “Mortgage” means a consensual interest in real property, including fixtures, that secures payment or performance of an obligation.

56. “New debtor” means a person that becomes bound as debtor under section 47-9203, subsection D by a security agreement previously entered into by another person.

57. “New value” means money, money’s worth in property, services or new credit or release by a transferee of an interest in property previously transferred to the transferee. New value does not include an obligation substituted for another obligation.

58. “Noncash proceeds” means proceeds other than cash proceeds.

59. “Obligor” means a person that, with respect to an obligation secured by a security interest in or an agricultural lien on the collateral, owes payment or other performance of the obligation, has provided property other than the collateral to secure payment or other performance of the obligation or is otherwise accountable in whole or in part for payment or other performance of the obligation. Obligor does not include issuers or nominated persons under a letter of credit.

60. “Original debtor”, except as used in section 47-9310, subsection C, means a person that, as debtor, entered into a security agreement to which a new debtor has become bound under section 47-9203, subsection D.

61. “Payment intangible” means a general intangible under which the account debtor’s principal obligation is a monetary obligation.

62. “Person related to”, with respect to an individual, means:

(a) The spouse of the individual;

(b) A brother, brother-in-law, sister or sister-in-law of the individual;

(c) An ancestor or lineal descendant of the individual or the individual’s spouse; or

(d) Any other relative, by blood or marriage, of the individual or the individual’s spouse who shares the same home with the individual.

63. “Person related to”, with respect to an organization, means:

(a) A person directly or indirectly controlling, controlled by or under common control with the organization;

(b) An officer or director of, or a person performing similar functions with respect to, the organization;

(c) An officer or director of, or a person performing similar functions with respect to, a person described in subdivision (a) of this paragraph;

(d) The spouse of an individual described in subdivision (a), (b) or (c) of this paragraph; or

(e) An individual who is related by blood or marriage to an individual described in subdivision (a), (b), (c) or (d) of this paragraph and who shares the same home with the individual.

64. “Proceeds”, except as used in section 47-9609, subsection B, means the following property:

(a) Whatever is acquired on the sale, lease, license, exchange or other disposition of collateral;

(b) Whatever is collected on, or distributed on account of, collateral;

(c) Rights arising out of collateral;

(d) To the extent of the value of collateral, claims arising out of the loss, nonconformity or interference with the use of, defects or infringement of rights in, or damage to the collateral; or

(e) To the extent of the value of collateral and to the extent payable to the debtor or the secured party, insurance payable by reason of the loss or nonconformity of, defects or infringement of rights in, or damage to the collateral.

65. “Promissory note” means an instrument that evidences a promise to pay a monetary obligation, does not evidence an order to pay and does not contain an acknowledgment by a bank that the bank has received for deposit a sum of money or funds.

66. “Proposal” means a record authenticated by a secured party that includes the terms on which the secured party is willing to accept collateral in full or partial satisfaction of the obligation it secures pursuant to sections 47-9620, 47-9621 and 47-9622.

67. “Pursuant to commitment”, with respect to an advance made or other value given by a secured party, means pursuant to the secured party’s obligation, whether or not a subsequent event of default or other event not within the secured party’s control has relieved or may relieve the secured party from its obligation.

68. “Record”, except as used in “for record”, “of record”, “record or legal title”, and “record owner”, means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

69. “Registered organization” means an organization organized solely under the law of a single state or the United States and as to which the state or the United States must maintain a public record showing the organization to have been organized.

70. “Secondary obligor” means an obligor to the extent that:

(a) The obligor’s obligation is secondary; or

(b) The obligor has a right of recourse with respect to an obligation secured by collateral against the debtor, another obligor or property of either.

71. “Secured party” means:

(a) A person in whose favor a security interest is created or provided for under a security agreement, whether or not any obligation to be secured is outstanding;

(b) A person that holds an agricultural lien;

(c) A consignor;

(d) A person to which accounts, chattel paper, payment intangibles or promissory notes have been sold;

(e) A trustee, indenture trustee, agent, collateral agent or other representative in whose favor a security interest or agricultural lien is created or provided for; or

(f) A person that holds a security interest arising under section 47-2401, 47-2505, 47-2711, 47-2A508, 47-4210 or 47-5118.

72. “Security agreement” means an agreement that creates or provides for a security interest.

73. “Send”, in connection with a record or notification, means:

(a) To deposit in the mail, deliver for transmission or transmit by any other usual means of communication, with postage or cost of transmission provided for, addressed to any address reasonable under the circumstances; or

(b) To cause the record or notification to be received within the time that it would have been received if properly sent under subdivision (a) of this paragraph.

74. “Software” means a computer program and any supporting information provided in connection with a transaction relating to the program. Software does not include a computer program that is included in the definition of goods.

75. “State” means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands or any territory or insular possession subject to the jurisdiction of the United States.

76. “Supporting obligation” means a letter-of-credit right or secondary obligation that supports the payment or performance of an account, chattel paper, a document, a general intangible, an instrument or investment property.

77. “Tangible chattel paper” means chattel paper evidenced by a record or records consisting of information that is inscribed on a tangible medium.

78. “Termination statement” means an amendment of a financing statement that:

(a) Identifies, by its file number, the initial financing statement to which it relates; and

(b) Indicates either that it is a termination statement or that the identified financing statement is no longer effective.

79. “Transmitting utility” means a person primarily engaged in the business of:

(a) Operating a railroad, subway, street railway or trolley bus;

(b) Transmitting communications electrically, electromagnetically or by light;

(c) Transmitting goods by pipeline or sewer; or

(d) Transmitting or producing and transmitting electricity, steam, gas or water.

B. “Control” as provided in section 47-7106 and the following definitions in other sections apply to this chapter:

      1.  "Applicant"                               Section 47-5102
      2.  "Beneficiary"                             Section 47-5102
      3.  "Broker"                                  Section 47-8102
      4.  "Certificated security"                   Section 47-8102
      5.  "Check"                                   Section 47-3104
      6.  "Clearing corporation"                    Section 47-8102
      7.  "Contract for sale"                       Section 47-2106
      8.  "Customer"                                Section 47-4104
      9.  "Entitlement holder"                      Section 47-8102
     10.  "Financial asset"                         Section 47-8102
     11.  "Holder in due course"                    Section 47-3302

12. “Issuer” (with respect to a letter of

           credit or letter-of-credit right)        Section 47-5102
     13.  "Issuer" (with respect to a security)     Section 47-8201

14. “Issuer” (with respect to documents

           of title)                                Section 47-7102
     15.  "Lease"                                   Section 47-2A103
     16.  "Lease agreement"                         Section 47-2A103
     17.  "Lease contract"                          Section 47-2A103
     18.  "Leasehold interest"                      Section 47-2A103
     19.  "Lessee"                                  Section 47-2A103

20. “Lessee in ordinary course

of business"                        Section 47-2A103
     21.  "Lessor"                                  Section 47-2A103
     22.  "Lessor's residual interest"              Section 47-2A103
     23.  "Letter of credit"                        Section 47-5102
     24.  "Merchant"                                Section 47-2104
     25.  "Negotiable instrument"                   Section 47-3104
     26.  "Nominated person"                        Section 47-5102
     27.  "Note"                                    Section 47-3104
     28.  "Proceeds of a letter of credit"          Section 47-5114
     29.  "Prove"                                   Section 47-3103
     30.  "Sale"                                    Section 47-2106
     31.  "Securities account"                      Section 47-8501
     32.  "Securities intermediary"                 Section 47-8102
     33.  "Security"                                Section 47-8102
     34.  "Security certificate"                    Section 47-8102
     35.  "Security entitlement"                    Section 47-8102
     36.  "Uncertificated security"                 Section 47-8102

47-9103. Purchase money security interest; application of payments; burden of establishing

A. In this section:

1. “Purchase money collateral” means goods or software that secures a purchase money obligation incurred with respect to that collateral.

2. “Purchase money obligation” means an obligation of an obligor incurred as all or part of the price of the collateral or for value given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used.

B. A security interest in goods is a purchase money security interest:

1. To the extent that the goods are purchase money collateral with respect to that security interest;

2. If the security interest is in inventory that is or was purchase money collateral, also to the extent that the security interest secures a purchase money obligation incurred with respect to other inventory in which the secured party holds or held a purchase money security interest; and

3. Also to the extent that the security interest secures a purchase money obligation incurred with respect to software in which the secured party holds or held a purchase money security interest.

C. A security interest in software is a purchase money security interest to the extent that the security interest also secures a purchase money obligation incurred with respect to goods in which the secured party holds or held a purchase money security interest if:

1. The debtor acquired its interest in the software in an integrated transaction in which it acquired an interest in the goods; and

2. The debtor acquired its interest in the software for the principal purpose of using the software in the goods.

D. The security interest of a consignor in goods that are the subject of a consignment is a purchase money security interest in inventory.

E. In a transaction other than a consumer goods transaction, if the extent to which a security interest is a purchase money security interest depends on the application of a payment to a particular obligation, the payment must be applied:

1. In accordance with any reasonable method of application to which the parties agree;

2. In the absence of the parties’ agreement to a reasonable method, in accordance with any intention of the obligor manifested at or before the time of payment; or

3. In the absence of an agreement to a reasonable method and a timely manifestation of the obligor’s intention, in the following order:

(a) To obligations that are not secured; and

(b) If more than one obligation is secured, to obligations secured by purchase money security interests in the order in which those obligations were incurred.

F. In a transaction other than a consumer goods transaction, a purchase money security interest does not lose its status as such, even if:

1. The purchase money collateral also secures an obligation that is not a purchase money obligation;

2. Collateral that is not purchase money collateral also secures the purchase money obligation; or

3. The purchase money obligation has been renewed, refinanced, consolidated or restructured.

G. In a transaction other than a consumer goods transaction, a secured party claiming a purchase money security interest has the burden of establishing the extent to which the security interest is a purchase money security interest.

H. The limitation of the rules in subsections E, F and G to transactions other than consumer goods transactions is intended to leave to the court the determination of the proper rules in consumer goods transactions. The court may not infer from that limitation the nature of the proper rule in consumer goods transactions and may continue to apply established approaches.

47-9108. Sufficiency of description

A. Except as otherwise provided in subsections C, D and E, a description of personal or real property is sufficient, whether or not it is specific, if it reasonably identifies what is described.

B. Except as otherwise provided in subsection D, a description of collateral reasonably identifies the collateral if it identifies the collateral by:

1. Specific listing;

2. Category;

3. Except as otherwise provided in subsection E, a type of collateral defined in this title;

4. Quantity;

5. Computational or allocational formula or procedure; or

6. Except as otherwise provided in subsection C, any other method, if the identity of the collateral is objectively determinable.

C. A description of collateral as “all the debtor’s assets” or “all the debtor’s personal property” or using words of similar import does not reasonably identify the collateral.

D. Except as otherwise provided in subsection E, a description of a security entitlement, securities account or commodity account is sufficient if it describes:

1. The collateral by those terms or as investment property; or

2. The underlying financial asset or commodity contract.

E. A description only by type of collateral defined in this title is an insufficient description of:

1. A commercial tort claim; or

2. In a consumer transaction, consumer goods, a security entitlement, a securities account or a commodity account.

7-9201. General effectiveness of security agreement

A. Except as otherwise provided in this title, a security agreement is effective according to its terms between the parties, against purchasers of the collateral and against creditors.

B. A transaction subject to this chapter is subject to any applicable rule of law that establishes a different rule for consumers and any other statute or rule that regulates the rates, charges, agreements and practices for loans, credit sales or other extensions of credit and any consumer protection statute or rule.

C. In case of conflict between this chapter and a rule of law, statute or other rule described in subsection B, the rule of law, statute or other rule controls. Failure to comply with a statute or rule described in subsection B has only the effect the statute or rule specifies.

D. This chapter does not:

1. Validate any rate, charge, agreement or practice that violates a rule of law, statute or other rule described in subsection B; or

2. Extend the application of the rule of law, statute or other rule to a transaction not otherwise subject to it.

47-9203. Attachment and enforceability of security interest; proceeds; supporting obligations; formal requisites

A. A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment.

B. Except as otherwise provided in subsections C through I of this section, a security interest is enforceable against the debtor and third parties with respect to the collateral only if:

1. Value has been given;

2. The debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and

3. One of the following conditions is met:

(a) The debtor has authenticated a security agreement that provides a description of the collateral and, if the security interest covers timber to be cut, a description of the land concerned;

(b) The collateral is not a certificated security and is in the possession of the secured party under section 47-9313 pursuant to the debtor’s security agreement;

(c) The collateral is a certificated security in registered form and the security certificate has been delivered to the secured party under section 47-8301 pursuant to the debtor’s security agreement; or

(d) The collateral is deposit accounts, electronic chattel paper, investment property, letter-of-credit rights or electronic documents, and the secured party has control under section 47-7106, 47-9104, 47-9105, 47-9106 or 47-9107 pursuant to the debtor’s security agreement.

C. Subsection B of this section is subject to section 47-4210 on the security interest of a collecting bank, section 47-5118 on the security interest of a letter-of-credit issuer or nominated person, section 47-9110 on a security interest arising under chapter 2 or 2A of this title, and section 47-9206 on security interests in investment property.

D. A person becomes bound as debtor by a security agreement entered into by another person if, by operation of law other than this chapter or by contract:

1. The security agreement becomes effective to create a security interest in the person’s property; or

2. The person becomes generally obligated for the obligations of the other person, including the obligation secured under the security agreement, and acquires or succeeds to all or substantially all of the assets of the other person.

E. If a new debtor becomes bound as debtor by a security agreement entered into by another person:

1. The agreement satisfies subsection B, paragraph 3 of this section with respect to existing or after-acquired property of the new debtor to the extent the property is described in the agreement; and

2. Another agreement is not necessary to make a security interest in the property enforceable.

F. The attachment of a security interest in collateral gives the secured party the rights to proceeds provided by section 47-9315 and is also attachment of a security interest in a supporting obligation for the collateral.

G. The attachment of a security interest in a right to payment or performance secured by a security interest or other lien on personal or real property is also attachment of a security interest in the security interest, mortgage or other lien.

H. The attachment of a security interest in a securities account is also attachment of a security interest in the security entitlements carried in the securities account.

I. The attachment of a security interest in a commodity account is also attachment of a security interest in the commodity contracts carried in the commodity account.

47-9301. Law governing perfection and priority of security interests

Except as otherwise provided in sections 47-9303 through 47-9306, the following rules determine the law governing perfection, the effect of perfection or nonperfection and the priority of a security interest in collateral:

1. Except as otherwise provided in this section, while a debtor is located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection or nonperfection and the priority of a security interest in collateral.

2. While collateral is located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection or nonperfection and the priority of a possessory security interest in that collateral.

3. Except as otherwise provided in paragraph 4 of this section, while tangible negotiable documents, goods, instruments, money or tangible chattel paper is located in a jurisdiction, the local law of that jurisdiction governs:

(a) Perfection of a security interest in the goods by filing a fixture filing;

(b) Perfection of a security interest in timber to be cut; and

(c) The effect of perfection or nonperfection and the priority of a nonpossessory security interest in the collateral.

4. The local law of the jurisdiction in which the wellhead or minehead is located governs perfection, the effect of perfection or nonperfection and the priority of a security interest in as-extracted collateral.

47-9318. No interest retained in right to payment that is sold; rights and title of seller of account or chattel paper with respect to creditors and purchasers

A. A debtor that has sold an account, chattel paper, payment intangible or promissory note does not retain a legal or equitable interest in the collateral sold.

B. For purposes of determining the rights of creditors of, and purchasers for value of an account or chattel paper from, a debtor that has sold an account or chattel paper, while the buyer’s security interest is unperfected, the debtor is deemed to have rights and title to the account or chattel paper identical to those the debtor sold.

47-9406. Discharge of account debtor; notification of assignment; identification and proof of assignment; restrictions on assignment of accounts, chattel paper, payment intangibles and promissory notes ineffective

A. Subject to subsections B through H of this section, an account debtor on an account, chattel paper or a payment intangible may discharge its obligation by paying the assignor until, but not after, the account debtor receives a notification, authenticated by the assignor or the assignee, that the amount due or to become due has been assigned and that payment is to be made to the assignee. After receipt of the notification, the account debtor may discharge its obligation by paying the assignee and may not discharge the obligation by paying the assignor.

B. Subject to subsection H of this section, notification is ineffective under subsection A of this section:

1. If it does not reasonably identify the rights assigned;

2. To the extent that an agreement between an account debtor and a seller of a payment intangible limits the account debtor’s duty to pay a person other than the seller and the limitation is effective under law other than this chapter; or

3. At the option of an account debtor, if the notification notifies the account debtor to make less than the full amount of any installment or other periodic payment to the assignee, even if:

(a) Only a portion of the account, chattel paper or payment intangible has been assigned to that assignee;

(b) A portion has been assigned to another assignee; or

(c) The account debtor knows that the assignment to that assignee is limited.

C. Subject to subsection H of this section, if requested by the account debtor, an assignee shall seasonably furnish reasonable proof that the assignment has been made. Unless the assignee complies, the account debtor may discharge its obligation by paying the assignor, even if the account debtor has received a notification under subsection A of this section.

D. Except as otherwise provided in subsection E of this section and sections 47-2A303 and 47-9407, and subject to subsection H of this section, a term in an agreement between an account debtor and an assignor or in a promissory note is ineffective to the extent that it:

1. Prohibits, restricts or requires the consent of the account debtor or person obligated on the promissory note to the assignment or transfer of, or the creation, attachment, perfection or enforcement of a security interest in, the account, chattel paper, payment intangible or promissory note; or

2. Provides that the assignment or transfer or the creation, attachment, perfection or enforcement of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination or remedy under the account, chattel paper, payment intangible or promissory note.

E. Subsection D of this section does not apply to the sale of a payment intangible or promissory note.

F. Except as otherwise provided in sections 47-2A303 and 47-9407 and subject to subsections H and J of this section, a rule of law, statute or regulation that prohibits, restricts or requires the consent of a government, governmental body or official, or account debtor to the assignment or transfer of, or creation of a security interest in, an account or chattel paper, is ineffective to the extent that the rule of law, statute or regulation:

1. Prohibits, restricts or requires the consent of the government, governmental body or official, or account debtor to the assignment or transfer of, or the creation, attachment, perfection or enforcement of a security interest in, the account or chattel paper; or

2. Provides that the assignment or transfer or the creation, attachment, perfection or enforcement of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination or remedy under the account or chattel paper.

G. Subject to subsection H of this section, an account debtor shall not waive or vary its option under subsection B, paragraph 3 of this section.

H. This section is subject to law other than this chapter that establishes a different rule for an account debtor who is an individual and who incurred the obligation primarily for personal, family or household purposes.

I. This section does not apply to an assignment of a health-care-insurance receivable.

J. This section prevails over any inconsistent provisions in any statutes, rules and regulations.

47-9501. Filing office

A. Except as otherwise provided in subsection B, if the local law of this state governs perfection of a security interest or agricultural lien, the office in which to file a financing statement to perfect the security interest or agricultural lien is:

1. The office designated for the filing or recording of a record of a mortgage on the related real property, if:

(a) The collateral is as-extracted collateral or timber to be cut; or

(b) The financing statement is filed as a fixture filing and the collateral is goods that are or are to become fixtures; or

2. The office of the secretary of state, in all other cases, including a case in which the collateral is goods that are or are to become fixtures and the financing statement is not filed as a fixture filing.

B. The office in which to file a financing statement to perfect a security interest in collateral, including fixtures, of a transmitting utility is the office of the secretary of state. The financing statement also constitutes a fixture filing as to the collateral indicated in the financing statement that is or is to become fixtures.

47-9502. Contents of financing statement; record of mortgage as financing statement; time of filing financing statement

A. Subject to subsection B of this section, a financing statement is sufficient only if it:

1. Provides the name of the debtor;

2. Provides the name of the secured party or a representative of the secured party; and

3. Indicates the collateral covered by the financing statement.

B. Except as otherwise provided in section 47-9501, subsection B, to be sufficient, a financing statement that covers as-extracted collateral or timber to be cut, or that is filed as a fixture filing and covers goods that are or are to become fixtures, must satisfy subsection A of this section and also:

1. Indicate that it covers this type of collateral;

2. Indicate that it is to be filed in the real property records;

3. Provide a description of the real property to which the collateral is related; and

4. If the debtor does not have an interest of record in the real property, provide the name of a record owner.

C. A record of a mortgage is effective, from the date of recording, as a financing statement filed as a fixture filing or as a financing statement covering as-extracted collateral or timber to be cut only if:

1. The record indicates the goods or accounts that it covers;

2. The goods are or are to become fixtures related to the real property described in the record or the collateral is related to the real property described in the record and is as-extracted collateral or timber to be cut;

3. The record satisfies the requirements for a financing statement in this section other than an indication that it is to be filed in the real property records; and

4. The record is recorded.

D. A financing statement may be filed before a security agreement is made or a security interest otherwise attaches.

47-9503. Name of debtor and secured party

A. A financing statement sufficiently provides the name of the debtor:

1. If the debtor is a registered organization, only if the financing statement provides the name of the debtor indicated on the public record of the debtor’s jurisdiction of organization that shows the debtor to have been organized;

2. If the debtor is a decedent’s estate, only if the financing statement provides the name of the decedent and indicates that the debtor is an estate;

3. If the debtor is a trust or a trustee acting with respect to property held in trust, only if the financing statement:

(a) Provides the name specified for the trust in its organic documents or, if no name is specified, provides the name of the settlor and additional information sufficient to distinguish the debtor from other trusts having one or more of the same settlors; and

(b) Indicates, in the debtor’s name or otherwise, that the debtor is a trust or is a trustee acting with respect to property held in trust; and

4. In other cases:

(a) If the debtor has a name, only if it provides the individual or organizational name of the debtor; and

(b) If the debtor does not have a name, only if it provides the names of the partners, members, associates or other persons comprising the debtor.

B. A financing statement that provides the name of the debtor in accordance with subsection A is not rendered ineffective by the absence of:

1. A trade name or other name of the debtor; or

2. Unless required under subsection A, paragraph 4, subdivision (b), names of partners, members, associates or other persons comprising the debtor.

C. A financing statement that provides only the debtor’s trade name does not sufficiently provide the name of the debtor.

D. Failure to indicate the representative capacity of a secured party or representative of a secured party does not affect the sufficiency of a financing statement.

E. A financing statement may provide the name of more than one debtor and the name of more than one secured party.

47-9509. Persons entitled to file a record

A. A person may file an initial financing statement, amendment that adds collateral covered by a financing statement or amendment that adds a debtor to a financing statement only if:

1. The debtor authorizes the filing in an authenticated record or pursuant to subsection B or C of this section; or

2. The person holds an agricultural lien that has become effective at the time of filing and the financing statement covers only collateral in which the person holds an agricultural lien.

B. By authenticating or becoming bound as debtor by a security agreement, a debtor or new debtor authorizes the filing of an initial financing statement, and an amendment, covering:

1. The collateral described in the security agreement; and

2. Property that becomes collateral under section 47-9315, subsection A, paragraph 2, whether or not the security agreement expressly covers proceeds.

C. A person may file an amendment other than an amendment that adds collateral covered by a financing statement or an amendment that adds a debtor to a financing statement only if:

1. The secured party of record authorizes the filing; or

2. The amendment is a termination statement for a financing statement as to which the secured party of record has failed to file or send a termination statement as required by section 47-9513, subsection A or C, the debtor authorizes the filing and the termination statement indicates that the debtor authorized it to be filed.

D. If there is more than one secured party of record for a financing statement, each secured party of record may authorize the filing of an amendment under subsection C of this section.

47-9511. Secured party of record

A. A secured party of record with respect to a financing statement is a person whose name is provided as the name of the secured party or a representative of the secured party in an initial financing statement that has been filed. If an initial financing statement is filed under section 47-9514, subsection A, the assignee named in the initial financing statement is the secured party of record with respect to the financing statement.

B. If an amendment of a financing statement that provides the name of a person as a secured party or a representative of a secured party is filed, the person named in the amendment is a secured party of record. If an amendment is filed under section 47-9514, subsection B, the assignee named in the amendment is a secured party of record.

C. A person remains a secured party of record until the filing of an amendment of the financing statement that deletes the person.

47-9514. Assignment of powers of secured party of record

A. Except as otherwise provided in subsection C of this section, an initial financing statement may reflect an assignment of all of the secured party’s power to authorize an amendment to the financing statement by providing the name and mailing address of the assignee as the name and address of the secured party.

B. Except as otherwise provided in subsection C of this section, a secured party of record may assign of record all or part of its power to authorize an amendment to a financing statement by filing in the filing office an amendment of the financing statement that:

1. Identifies, by its file number, the initial financing statement to which it relates;

2. Provides the name of the assignor; and

3. Provides the name and mailing address of the assignee.

C. An assignment of record of a security interest in a fixture covered by a record of a mortgage that is effective as a financing statement filed as a fixture filing under section 47-9502, subsection C may be made only by an assignment of record of the mortgage in the manner provided by law of this state other than this title.

D. A secured party of record may assign of record all of the secured party’s rights under more than one financing statement filed with the secretary of state by filing a master assignment setting forth the name of the secured party of record and file number of each financing statement and the name and mailing address of the assignee. The secured party shall also provide filing information in computer-readable form prescribed by the secretary of state.

C. In addition, chapter 1 of this title contains general definitions and principles of construction and interpretation applicable throughout this chapter.

If a creditor or buyer extends value in reliance on the clean title, the question that arises is who as between the original creditor and a later creditor or buyer should prevail in the event of a dispute.  In Doherty v. Obregon, 433 P.2d 52 (Ariz.App. 1967), decided under an earlier version of Arizona’s certificate of title law, the court held in favor of the original creditor on the ground that that creditor had duly complied with the certificate of title law and had done all that it could do to perfect its security interest.  The rationale of the Obregon decision is sound and may well be applied should such a dispute arise under new Article 9.  It is desirable to give some degree of protection to non-dealer buyers, such as is provided for in new section 9-337 and discussed in Chapter 24 (Continuing Perfection — Changes as to the Use of the Collateral or in the Location of the Collateral or the Debtor; Security Interests in Proceeds).  However, even with the changes in the certificate of title lien notation system aimed at reducing the risk of mistake or fraud, see, e.g., ARS 28-2008 and 28-2057, the message to creditors and buyers is that they should not rely on the physical appearance of a certificate of title and should check with the motor vehicles department to be sure there are not any outstanding encumbrances.

In Obregon the dispute was between parties both of whom were relying on certificates of title issued by the same state.  It also can happen that certificates of title are issued by more than one state.  The new Article 9 scheme contemplates that there be only one certificate of title covering goods at any one time and that it will be clear which state’s law governs perfection and non-perfection.  However, because of fraud and the lack of complete coordination among state agencies responsible for administering certificate of title statutes from state to state, more than one certificate of title covering the same goods may be issued and be outstanding.  See Official Comment to 6 to 9-303.  Deciding which state’s law governs perfection in these rare but not unheard of cases requires applying new sections 9-316(d) and (e) and the examination of these sections is best left to Chapter 24 (Continuing Perfection — Changes as to the Use of the Collateral or in the Location of the Collateral or the Debtor; Security Interests in Proceeds).

The next five problems will help you get a handle on the certificate of title lien notation scheme exception to perfection under Article 9 itself.

Problem 17.1

Dealer, an Arizona automobile dealer, sells a new automobile to Buyer, an Arizona resident, in Arizona. The automobile is purchased for use on the Arizona highways.  Buyer pays $2,000 down and agrees to pay the balance over four years.  Buyer gives Dealer an interest in the automobile to secure the unpaid price.  How should Dealer perfect its security interest?  If Dealer submits an application for a certificate of title nine days after the purchase contract is signed is the security interest perfected and, if so, as of what date?  Do your answers differ depending on whether former or new Article 9 applies?  Would your answer to the question of how Dealer should perfect its security interest change if Dealer knows Buyer is just passing through Arizona and resides and will use the vehicle in California?  Which state’s law, that of Arizona or that of California, governs perfection if Dealer applies for a California certificate of title?  Does it make any difference to perfection and the timing of perfection whether Arizona or California law governs?

Problem 17.2

Dealer is a seller of new automobiles. Dealer is an Arizona corporation doing business in Phoenix, Arizona and San Diego, California. Dealer acquires a fleet of new automobiles to add to its inventory. The purchase is financed by Bank, which takes a security interest in the automobiles to secure the unpaid price of the fleet of automobiles.  How should Bank perfect its security interest in the fleet of automobiles under new Article 9?  By way of review of important material covered in Chapter 13 (Overview of Perfection by Filing), where should Bank file its financing statement?  Would filing be proper if the facts of Problem 17.2 were that the debtor was an automobile rental agency that leased but did not sell automobiles (except to dispose of and replace automobiles that were leased)?

Problem 17.3

Lender lends to Debtor in Arizona.  Debtor delivers the certificate of title to Lender as security for the loan.  Is the security interest perfected under new Article 9?  Would your answer change if Lender took possession of the vehicle?

Problem 17.4 

Bank finances the purchase of an automobile by Debtor in Arizona.  Bank duly applies to the Arizona Motor Vehicle Department for a certificate of title noting Bank’s security interest.  Such a title is issued to Debtor.  Subsequently, Debtor informs the Department of Motor Vehicles that it has lost the title to the vehicle and a replacement title is issued.  No lien is noted on the title.  Debtor sells the vehicle to Dealer in Arizona and Dealer pays an amount unadjusted for the amount of the security interest.  Debtor defaults on the loan to Bank.  Bank tracks the vehicle to Dealer and demands that Dealer satisfy the loan debt or turn the vehicle over to Bank.  Who wins?  In answering the question assume that the outcome turns on whether Bank’s security interest is perfected or not.  As noted above, under contemporary certificate of title systems disputes such as that in Problem 17.4 generally should not arise.  However, what should a similarly situated dealer (or lender) do to be safe?

Problem 17.5

Dealer in Arizona sells to Debtor a new cabin cruiser boat and boat trailer that are to be kept and used in Debtor’s business in Arizona.  Dealer takes an interest in the boat and boat trailer to secure the unpaid purchase price of each.  How should the security interests be perfected under new Article 9?

G. Vehicle Financing As A Three-Party Transaction

It is useful here to anticipate some complexity that often exists as to an already not uncomplicated perfection scheme.  That complexity arises because vehicle financing, whether the debtor is a dealer and the vehicles are inventory (in which case a financing statement is required) or the debtor is a person other than a dealer holding a vehicle for sale (in which case lien notation is required), often is a three-party transaction.

In a three-party transaction there will be two debtors and two creditors.  For example, if you buy an automobile on credit from a retailer and the retailer takes a security interest in the vehicle then you are the debtor and the retailer is the secured creditor.  But, quite likely the dealer has borrowed from a lender who finances the dealer’s acquisition of inventory, including the vehicle you have purchased on credit.  Consequently, the dealer is a creditor as to you but a debtor as to the lender.

There are many variations on three-party transactions. Recall from Chapter 4 (Scope of Article 9) that under new section 9-109(a)(3) sales of contracts are treated as secured transactions. The details determine what each creditor must do to perfect its security interest.  Former 9-302(2) provided that if a perfected security interest was assigned no further action was needed to perfect the interest.  The effect of this section was that where a creditor had been assigned an already perfected security interest the assignee-creditor did not have to take further action to perfect the assigned security interest.  New section 9-310(c) tracks former 9-302(2) word for word.

However, the assignee-creditor is excused from further action only where the assigned security interest was in fact perfected at the time of the assignment.  Moreover, whether the assignment of a security interest is effective and whether the assigned security interest is perfected are separate matters.  It should also be noted that new section 9-310(c) refers to the need to file a financing statement. As discussed earlier, under new section 9-311(c) lien notation in compliance with a certificate of title statute is the equivalent of filing.

You may test your understanding of the three-party financing arrangements in the next problem.

Problem 17.6

Dealer in Problem 17.1 borrows from Finance Company.  Dealer assigns to Finance Company the contract of sale involved in Problem 17.1.  Is Finance Company protected against a trustee in bankruptcy if Buyer files bankruptcy? Recall that protection against a trustee in bankruptcy turns on perfection.  Is Finance Company protected against a trustee in bankruptcy if Dealer files bankruptcy?  What advice would you give to Finance Company if you were advising Finance Company as to bankruptcy risks?

Foreclosure Defense: 11 Year Ohio Fight Keeps Going — Persistence Pays

Go Davet GO!!!!!!

The Court House:
 How One Family
 Fought Foreclosure
By AMIR EFRATI
December 28, 2007; Page A1
BEACHWOOD, Ohio — Faced with the threat of foreclosure, many homeowners give up and abandon their homes.
Then there’s Richard Davet.
He and his wife, Lynn, lived in a six-bedroom home in this Cleveland suburb for nearly 20 years when, in 1996, he was served with a foreclosure lawsuit. Rather than turn over the keys, he hit the law books. Flooding the courts with papers, Mr. Davet staved off foreclosure for 11 years, until this past January, when a county sheriff’s deputy evicted the couple and changed the locks. They didn’t make a mortgage payment the entire time.
“Our four Scottish terriers are buried there,” says the 63-year-old Mr. Davet. “It was heaven on earth, an unbelievable property, and they took it from us like candy from a baby.”
Mr. Davet’s case is believed to be the longest residential foreclosure of its kind in the history of Cuyahoga County, which is at the epicenter of the foreclosure crisis currently enveloping Ohio and many other parts of the country. Foreclosure actions are generally routine, typically taking from a few months to a couple of years to get the borrower out of the home. Companies turn the work over to so-called foreclosure-mill law firms, and generally cases are uncontested.

Mr. Davet’s argument — NationsBanc couldn’t bring the suit because it didn’t legally own his mortgage — is the same red-hot legal theory now being embraced by judges and regulators in Ohio and elsewhere to help give homeowners a chance against foreclosure. Is this all about a legal system at work, or not working? Discuss it here.
These days, more homeowners are digging in their heels.
They delay foreclosures by filing for bankruptcy on the eve of a court-ordered sale of the property, or by refusing to answer the door when the plaintiff tries to “serve” them with a foreclosure lawsuit. They pay lawyers a few hundred dollars to file a motion that can buy them a little more time.
But few are as dogged as Mr. Davet. And his fight may not be over yet. Though ousted from his home for nearly a year now, he is trying to get the charming 1940s house back, plus damages. He’s relying on the legal argument — currently making headlines — that a financial institution can only file a foreclosure action if it can prove it actually owns and holds the mortgage and promissory note.

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