Office of the Revisor of Statutes
Minnesota Session Laws - 1995, Regular Session
Key: (1) language to be deleted (2) new language
CHAPTER 194-S.F.No. 732
An act relating to commerce; enacting the revised
article 8 of the uniform commercial code proposed by
the national conference of commissioners on uniform
state laws; regulating investment securities; amending
Minnesota Statutes 1994, sections 336.1-105;
336.1-206; 336.4-104; 336.5-114; 336.9-103; 336.9-105;
336.9-106; 336.9-203; 336.9-301; 336.9-302; 336.9-304;
336.9-305; 336.9-306; 336.9-309; 336.9-312; and
336.10-104; proposing coding for new law in Minnesota
Statutes, chapter 336; repealing Minnesota Statutes
1994, sections 336.8-101; 336.8-102; 336.8-103;
336.8-104; 336.8-105; 336.8-106; 336.8-107; 336.8-108;
336.8-201; 336.8-202; 336.8-203; 336.8-204; 336.8-205;
336.8-206; 336.8-207; 336.8-208; 336.8-301; 336.8-302;
336.8-303; 336.8-304; 336.8-305; 336.8-306; 336.8-307;
336.8-308; 336.8-309; 336.8-310; 336.8-311; 336.8-312;
336.8-313; 336.8-314; 336.8-315; 336.8-316; 336.8-317;
336.8-318; 336.8-319; 336.8-320; 336.8-321; 336.8-401;
336.8-402; 336.8-403; 336.8-404; 336.8-405; 336.8-406;
336.8-407; and 336.8-408.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
ARTICLE 1
UNIFORM COMMERCIAL CODE
Revised Article 8
INVESTMENT SECURITIES
Part 1
SHORT TITLE AND GENERAL MATTERS
Section 1. [336.8-101] [SHORT TITLE.] This article may be
cited as Uniform Commercial Code - Investment Securities.
Sec. 2. [336.8-102] [DEFINITIONS.]
(a) In this article:
(1) "Adverse claim" means a claim that a claimant has a
property interest in a financial asset and that it is a
violation of the rights of the claimant for another person to
hold, transfer, or deal with the financial asset.
(2) "Bearer form," as applied to a certificated security,
means a form in which the security is payable to the bearer of
the security certificate according to its terms but not by
reason of an endorsement.
(3) "Broker" means a person defined as a broker or dealer
under the federal securities laws, but without excluding a bank
acting in that capacity.
(4) "Certificated security" means a security that is
represented by a certificate.
(5) "Clearing corporation" means:
(i) a person that is registered as a "clearing agency"
under the federal securities laws;
(ii) a federal reserve bank; or
(iii) any other person that provides clearance or
settlement services with respect to financial assets that would
require it to register as a clearing agency under the federal
securities laws but for an exclusion or exemption from the
registration requirement, if its activities as a clearing
corporation, including promulgation of rules, are subject to
regulation by a federal or state governmental authority.
(6) "Communicate" means to:
(i) send a signed writing; or
(ii) transmit information by any mechanism agreed upon by
the persons transmitting and receiving the information.
(7) "Entitlement holder" means a person identified in the
records of a securities intermediary as the person having a
security entitlement against the securities intermediary. If a
person acquires a security entitlement by virtue of section
336.8-501(b)(2) or (3), that person is the entitlement holder.
(8) "Entitlement order" means a notification communicated
to a securities intermediary directing transfer or redemption of
a financial asset to which the entitlement holder has a security
entitlement.
(9) "Financial asset," except as otherwise provided in
section 336.8-103, means:
(i) a security;
(ii) an obligation of a person or a share, participation,
or other interest in a person or in property or an enterprise of
a person, which is, or is of a type, dealt in or traded on
financial markets, or which is recognized in any area in which
it is issued or dealt in as a medium for investment; or
(iii) any property that is held by a securities
intermediary for another person in a securities account if the
securities intermediary has expressly agreed with the other
person that the property is to be treated as a financial asset
under this article.
As context requires, the term means either the interest itself
or the means by which a person's claim to it is evidenced,
including a certificated or uncertificated security, a security
certificate, or a security entitlement.
(10) "Good faith," for purposes of the obligation of good
faith in the performance or enforcement of contracts or duties
within this article, means honesty in fact and the observance of
reasonable commercial standards of fair dealing.
(11) "Endorsement" means a signature that alone or
accompanied by other words is made on a security certificate in
registered form or on a separate document for the purpose of
assigning, transferring, or redeeming the security or granting a
power to assign, transfer, or redeem it.
(12) "Instruction" means a notification communicated to the
issuer of an uncertificated security which directs that the
transfer of the security be registered or that the security be
redeemed.
(13) "Registered form," as applied to a certificated
security, means a form in which:
(i) the security certificate specifies a person entitled to
the security; and
(ii) a transfer of the security may be registered upon
books maintained for that purpose by or on behalf of the issuer,
or the security certificate so states.
(14) "Securities intermediary" means:
(i) a clearing corporation; or
(ii) a person, including a bank or broker, that in the
ordinary course of its business maintains securities accounts
for others and is acting in that capacity.
(15) "Security," except as otherwise provided in section
336.8-103, means an obligation of an issuer or a share,
participation, or other interest in an issuer or in property or
an enterprise of an issuer:
(i) which is represented by a security certificate in
bearer or registered form, or the transfer of which may be
registered upon books maintained for that purpose by or on
behalf of the issuer;
(ii) which is one of a class or series or by its terms is
divisible into a class or series of shares, participations,
interests, or obligations; and
(iii) which:
(A) is, or is of a type, dealt in or traded on securities
exchanges or securities markets; or
(B) is a medium for investment and by its terms expressly
provides that it is a security governed by this article.
(16) "Security certificate" means a certificate
representing a security.
(17) "Security entitlement" means the rights and property
interest of an entitlement holder with respect to a financial
asset specified in part 5.
(18) "Uncertificated security" means a security that is not
represented by a certificate.
(b) Other definitions applying to this article and the
sections in which they appear are:
"Appropriate person," section 336.8-107
"Control," section 336.8-106
"Delivery," section 336.8-301
"Investment company security," section 336.8-103
"Issuer," section 336.8-201
"Overissue," section 336.8-210
"Protected purchaser," section 336.8-303
"Securities account," section 336.8-501
(c) In addition, article 1 contains general definitions and
principles of construction and interpretation applicable
throughout this article.
(d) The characterization of a person, business, or
transaction for purposes of this article does not determine the
characterization of the person, business, or transaction for
purposes of any other law, regulation, or rule.
Sec. 3. [336.8-103] [RULES FOR DETERMINING WHETHER CERTAIN
OBLIGATIONS AND INTERESTS ARE SECURITIES OR FINANCIAL ASSETS.]
(a) A share or similar equity interest issued by a
corporation, business trust, joint stock company, or similar
entity is a security.
(b) An "investment company security" is a security.
"Investment company security" means a share or similar equity
interest issued by an entity that is registered as an investment
company under the federal investment company laws, an interest
in a unit investment trust that is so registered, or a
face-amount certificate issued by a face-amount certificate
company that is so registered. Investment company security does
not include an insurance policy or endowment policy or annuity
contract issued by an insurance company.
(c) An interest in a partnership or limited liability
company is not a security unless it is dealt in or traded on
securities exchanges or in securities markets, its terms
expressly provide that it is a security governed by this
article, or it is an investment company security. However, an
interest in a partnership or limited liability company is a
financial asset if it is held in a securities account.
(d) A writing that is a security certificate is governed by
this article and not by article 3, even though it also meets the
requirements of that article. However, a negotiable instrument
governed by article 3 is a financial asset if it is held in a
securities account.
(e) An option or similar obligation issued by a clearing
corporation to its participants is not a security, but is a
financial asset.
(f) A commodity contract, as defined in section 336.9-115,
is not a security or a financial asset.
Sec. 4. [336.8-104] [ACQUISITION OF SECURITY OR FINANCIAL
ASSET OR INTEREST THEREIN.]
(a) A person acquires a security or an interest therein,
under this article, if:
(1) the person is a purchaser to whom a security is
delivered pursuant to section 336.8-301; or
(2) the person acquires a security entitlement to the
security pursuant to section 336.8-501.
(b) A person acquires a financial asset, other than a
security, or an interest therein, under this article, if the
person acquires a security entitlement to the financial asset.
(c) A person who acquires a security entitlement to a
security or other financial asset has the rights specified in
part 5, but is a purchaser of any security, security
entitlement, or other financial asset held by the securities
intermediary only to the extent provided in section 336.8-503.
(d) Unless the context shows that a different meaning is
intended, a person who is required by other law, regulation,
rule, or agreement to transfer, deliver, present, surrender,
exchange, or otherwise put in the possession of another person a
security or financial asset satisfies that requirement by
causing the other person to acquire an interest in the security
or financial asset pursuant to subsection (a) or (b).
Sec. 5. [336.8-105] [NOTICE OF ADVERSE CLAIM.]
(a) A person has notice of an adverse claim if:
(1) the person knows of the adverse claim;
(2) the person is aware of facts sufficient to indicate
that there is a significant probability that the adverse claim
exists and deliberately avoids information that would establish
the existence of the adverse claim; or
(3) the person has a duty, imposed by statute or
regulation, to investigate whether an adverse claim exists, and
the investigation so required would establish the existence of
the adverse claim.
(b) Having knowledge that a financial asset or interest
therein is or has been transferred by a representative imposes
no duty of inquiry into the rightfulness of a transaction and is
not notice of an adverse claim. However, a person who knows
that a representative has transferred a financial asset or
interest therein in a transaction that is, or whose proceeds are
being used, for the individual benefit of the representative or
otherwise in breach of duty has notice of an adverse claim.
(c) An act or event that creates a right to immediate
performance of the principle obligation represented by a
security certificate or sets a date on or after which the
certificate is to be presented or surrendered for redemption or
exchange does not itself constitute notice of an adverse claim
except in the case of a transfer more than:
(1) one year after a date set for presentment or surrender
for redemption or exchange; or
(2) six months after a date set for payment of money
against presentation or surrender of the certificate, if money
was available for payment on that date.
(d) A purchaser of a certificated security has notice of an
adverse claim if the security certificate:
(1) whether in bearer or registered form, has been endorsed
"for collection" or "for surrender" or for some other purpose
not involving transfer; or
(2) is in bearer form and has on it an unambiguous
statement that it is the property of a person other than the
transferor, but the mere writing of a name on the certificate is
not such a statement.
(e) Filing of a financing statement under article 9 is not
notice of an adverse claim to a financial asset.
Sec. 6. [336.8-106] [CONTROL.]
(a) A purchaser has "control" of a certificated security in
bearer form if the certificated security is delivered to the
purchaser.
(b) A purchaser has "control" of a certificated security in
registered form if the certificated security is delivered to the
purchaser, and:
(1) the certificate is endorsed to the purchaser or in
blank by an effective endorsement; or
(2) the certificate is registered in the name of the
purchaser, upon original issue or registration of transfer by
the issuer.
(c) A purchaser has "control" of an uncertificated security
if:
(1) the uncertificated security is delivered to the
purchaser; or
(2) the issuer has agreed that it will comply with
instructions originated by the purchaser without further consent
by the registered owner.
(d) A purchaser has "control" of a security entitlement if:
(1) the purchaser becomes the entitlement holder; or
(2) the securities intermediary has agreed that it will
comply with entitlement orders originated by the purchaser
without further consent by the entitlement holder.
(e) If an interest in a security entitlement is granted by
the entitlement holder to the entitlement holder's own
securities intermediary, the securities intermediary has control.
(f) A purchaser who has satisfied the requirements of
subsection (c)(2) or (d)(2) has control even if the registered
owner in the case of subsection (c)(2) or the entitlement holder
in the case of subsection (d)(2) retains the right to make
substitutions for the uncertificated security or security
entitlement, to originate instructions or entitlement orders to
the issuer or securities intermediary, or otherwise to deal with
the uncertificated security or security entitlement.
(g) An issuer or a securities intermediary may not enter
into an agreement of the kind described in subsection (c)(2) or
(d)(2) without the consent of the registered owner or
entitlement holder, but an issuer or a securities intermediary
is not required to enter into such an agreement even though the
registered owner or entitlement holder so directs. An issuer or
securities intermediary that has entered into such an agreement
is not required to confirm the existence of the agreement to
another party unless requested to do so by the registered owner
or entitlement holder.
Sec. 7. [336.8-107] [WHETHER ENDORSEMENT, INSTRUCTION, OR
ENTITLEMENT ORDER IS EFFECTIVE.]
(a) "Appropriate person" means:
(1) with respect to an endorsement, the person specified by
a security certificate or by an effective special endorsement to
be entitled to the security;
(2) with respect to an instruction, the registered owner of
an uncertificated security;
(3) with respect to an entitlement order, the entitlement
holder;
(4) if the person designated in paragraph (1), (2), or (3)
is deceased, the designated person's successor taking under
other law or the designated person's personal representative
acting for the estate of the decedent; or
(5) if the person designated in paragraph (1), (2), or (3)
lacks capacity, the designated person's guardian, conservator,
or other similar representative who has power under other law to
transfer the security or financial asset.
(b) An endorsement, instruction, or entitlement order is
effective if:
(1) it is made by the appropriate person;
(2) it is made by a person who has power under the law of
agency to transfer the security or financial asset on behalf of
the appropriate person, including, in the case of an instruction
or entitlement order, a person who has control under section
336.8-106(c)(2) or (d)(2); or
(3) the appropriate person has ratified it or is otherwise
precluded from asserting its ineffectiveness.
(c) An endorsement, instruction, or entitlement order made
by a representative is effective even if:
(1) the representative has failed to comply with a
controlling instrument or with the law of the state having
jurisdiction of the representative relationship, including any
law requiring the representative to obtain court approval of the
transaction; or
(2) the representative's action in making the endorsement,
instruction, or entitlement order or using the proceeds of the
transaction is otherwise a breach of duty.
(d) If a security is registered in the name of or specially
endorsed to a person described as a representative, or if a
securities account is maintained in the name of a person
described as a representative, an endorsement, instruction, or
entitlement order made by the person is effective even though
the person is no longer serving in the described capacity.
(e) Effectiveness of an endorsement, instruction, or
entitlement order is determined as of the date the endorsement,
instruction, or entitlement order is made, and an endorsement,
instruction, or entitlement order does not become ineffective by
reason of any later change of circumstances.
Sec. 8. [336.8-108] [WARRANTIES IN DIRECT HOLDING.]
(a) A person who transfers a certificated security to a
purchaser for value warrants to the purchaser, and an endorser,
if the transfer is by endorsement, warrants to any subsequent
purchaser, that:
(1) the certificate is genuine and has not been materially
altered;
(2) the transferor or endorser does not know of any fact
that might impair the validity of the security;
(3) there is no adverse claim to the security;
(4) the transfer does not violate any restriction on
transfer;
(5) if the transfer is by endorsement, the endorsement is
made by an appropriate person, or if the endorsement is by an
agent, the agent has actual authority to act on behalf of the
appropriate person; and
(6) the transfer is otherwise effective and rightful.
(b) A person who originates an instruction for registration
of transfer of an uncertificated security to a purchaser for
value warrants to the purchaser that:
(1) the instruction is made by an appropriate person, or if
the instruction is by an agent, the agent has actual authority
to act on behalf of the appropriate person;
(2) the security is valid;
(3) there is no adverse claim to the security; and
(4) at the time the instruction is presented to the issuer:
(i) the purchaser will be entitled to the registration of
transfer;
(ii) the transfer will be registered by the issuer free
from all liens, security interests, restrictions, and claims
other than those specified in the instruction;
(iii) the transfer will not violate any restriction on
transfer; and
(iv) the requested transfer will otherwise be effective and
rightful.
(c) A person who transfers an uncertificated security to a
purchaser for value and does not originate an instruction in
connection with the transfer warrants that:
(1) the uncertificated security is valid;
(2) there is no adverse claim to the security;
(3) the transfer does not violate any restriction on
transfer; and
(4) the transfer is otherwise effective and rightful.
(d) A person who endorses a security certificate warrants
to the issuer that:
(1) there is no adverse claim to the security; and
(2) the endorsement is effective.
(e) A person who originates an instruction for registration
of transfer of an uncertificated security warrants to the issuer
that:
(1) the instruction is effective; and
(2) at the time the instruction is presented to the issuer
the purchaser will be entitled to the registration of transfer.
(f) A person who presents a certificated security for
registration of transfer or for payment or exchange warrants to
the issuer that the person is entitled to the registration,
payment, or exchange, but a purchaser for value and without
notice of adverse claims to whom transfer is registered warrants
only that the person has no knowledge of any unauthorized
signature in a necessary endorsement.
(g) If a person acts as agent of another in delivering a
certificated security to a purchaser, the identity of the
principal was known to the person to whom the certificate was
delivered, and the certificate delivered by the agent was
received by the agent from the principal or received by the
agent from another person at the direction of the principal, the
person delivering the security certificate warrants only that
the delivering person has authority to act for the principal and
does not know of any adverse claim to the certificated security.
(h) A secured party who redelivers a security certificate
received, or after payment and on order of the debtor delivers
the security certificate to another person, makes only the
warranties of an agent under subsection (g).
(i) Except as otherwise provided in subsection (g), a
broker acting for a customer makes to the issuer and a purchaser
the warranties provided in subsections (a) through (f). A
broker that delivers a security certificate to its customer, or
causes its customer to be registered as the owner of an
uncertificated security, makes to the customer the warranties
provided in subsection (a) or (b), and has the rights and
privileges of a purchaser under this section. The warranties of
and in favor of the broker acting as an agent are in addition to
applicable warranties given by and in favor of the customer.
Sec. 9. [336.8-109] [WARRANTIES IN INDIRECT HOLDING.]
(a) A person who originates an entitlement order to a
securities intermediary warrants to the securities intermediary
that:
(1) the entitlement order is made by an appropriate person,
or if the entitlement order is by an agent, the agent has actual
authority to act on behalf of the appropriate person; and
(2) there is no adverse claim to the security entitlement.
(b) A person who delivers a security certificate to a
securities intermediary for credit to a securities account or
originates an instruction with respect to an uncertificated
security directing that the uncertificated security be credited
to a securities account makes to the securities intermediary the
warranties specified in section 336.8-108(a) or (b).
(c) If a securities intermediary delivers a security
certificate to its entitlement holder or causes its entitlement
holder to be registered as the owner of an uncertificated
security, the securities intermediary makes to the entitlement
holder the warranties specified in section 336.8-108(a) or (b).
Sec. 10. [336.8-110] [APPLICABILITY; CHOICE OF LAW.]
(a) The local law of the issuer's jurisdiction, as
specified in subsection (d), governs:
(1) the validity of a security;
(2) the rights and duties of the issuer with respect to
registration of transfer;
(3) the effectiveness of registration of transfer by the
issuer;
(4) whether the issuer owes any duties to an adverse
claimant to a security; and
(5) whether an adverse claim can be asserted against a
person to whom transfer of a certificated or uncertificated
security is registered or a person who obtains control of an
uncertificated security.
(b) The local law of the securities intermediary's
jurisdiction, as specified in subsection (e), governs:
(1) acquisition of a security entitlement from the
securities intermediary;
(2) the rights and duties of the securities intermediary
and entitlement holder arising out of a security entitlement;
(3) whether the securities intermediary owes any duties to
an adverse claimant to a security entitlement; and
(4) whether an adverse claim can be asserted against a
person who acquires a security entitlement from the securities
intermediary or a person who purchases a security entitlement or
interest therein from an entitlement holder.
(c) The local law of the jurisdiction in which a security
certificate is located at the time of delivery governs whether
an adverse claim can be asserted against a person to whom the
security certificate is delivered.
(d) "Issuer's jurisdiction" means the jurisdiction under
which the issuer of the security is organized or, if permitted
by the law of that jurisdiction, the law of another jurisdiction
specified by the issuer. An issuer organized under the law of
this state may specify the law of another jurisdiction as the
law governing the matters specified in subsection (a)(2) through
(5).
(e) The following rules determine a "securities
intermediary's jurisdiction" for purposes of this section:
(1) If an agreement between the securities intermediary and
its entitlement holder specifies that it is governed by the law
of a particular jurisdiction, that jurisdiction is the
securities intermediary's jurisdiction.
(2) If an agreement between the securities intermediary and
its entitlement holder does not specify the governing law as
provided in paragraph (1), but expressly specifies that the
securities account is maintained at an office in a particular
jurisdiction, that jurisdiction is the securities intermediary's
jurisdiction.
(3) If an agreement between the securities intermediary and
its entitlement holder does not specify a jurisdiction as
provided in paragraph (1) or (2), the securities intermediary's
jurisdiction is the jurisdiction in which is located the office
identified in an account statement as the office serving the
entitlement holder's account.
(4) If an agreement between the securities intermediary and
its entitlement holder does not specify a jurisdiction as
provided in paragraph (1) or (2) and an account statement does
not identify an office serving the entitlement holder's account
as provided in paragraph (3), the securities intermediary's
jurisdiction is the jurisdiction in which is located the chief
executive office of the securities intermediary.
(f) A securities intermediary's jurisdiction is not
determined by the physical location of certificates representing
financial assets, or by the jurisdiction in which is organized
the issuer of the financial asset with respect to which an
entitlement holder has a security entitlement, or by the
location of facilities for data processing or other record
keeping concerning the account.
Sec. 11. [336.8-111] [CLEARING CORPORATION RULES.]
A rule adopted by a clearing corporation governing rights
and obligations among the clearing corporation and its
participants in the clearing corporation is effective even if
the rule conflicts with this chapter and affects another party
who does not consent to the rule.
Sec. 12. [336.8-112] [CREDITOR'S LEGAL PROCESS.]
(a) The interest of a debtor in a certificated security may
be reached by a creditor only by actual seizure of the security
certificate by the officer making the attachment or levy, except
as otherwise provided in subsection (d). However, a
certificated security for which the certificate has been
surrendered to the issuer may be reached by a creditor by legal
process upon the issuer.
(b) The interest of a debtor in an uncertificated security
may be reached by a creditor only by legal process upon the
issuer at its chief executive office in the United States,
except as otherwise provided in subsection (d).
(c) The interest of a debtor in a security entitlement may
be reached by a creditor only by legal process upon the
securities intermediary with whom the debtor's securities
account is maintained, except as otherwise provided in
subsection (d).
(d) The interest of a debtor in a certificated security for
which the certificate is in the possession of a secured party,
or in an uncertificated security registered in the name of a
secured party, or a security entitlement maintained in the name
of a secured party, may be reached by a creditor by legal
process upon the secured party.
(e) A creditor whose debtor is the owner of a certificated
security, uncertificated security, or security entitlement is
entitled to aid from a court of competent jurisdiction, by
injunction or otherwise, in reaching the certificated security,
uncertificated security, or security entitlement or in
satisfying the claim by means allowed at law or in equity in
regard to property that cannot readily be reached by other legal
process.
Sec. 13. [336.8-113] [STATUTE OF FRAUDS INAPPLICABLE.]
A contract or modification of a contract for the sale or
purchase of a security is enforceable whether or not there is a
writing signed or record authenticated by a party against whom
enforcement is sought, even if the contract or modification is
not capable of performance within one year of its making.
Sec. 14. [336.8-114] [EVIDENTIARY RULES CONCERNING
CERTIFICATED SECURITIES.]
The following rules apply in an action on a certificated
security against the issuer:
(1) Unless specifically denied in the pleadings, each
signature on a security certificate or in a necessary
endorsement is admitted.
(2) If the effectiveness of a signature is put in issue,
the burden of establishing effectiveness is on the party
claiming under the signature, but the signature is presumed to
be genuine or authorized.
(3) If signatures on a security certificate are admitted or
established, production of the certificate entitles a holder to
recover on it unless the defendant establishes a defense or a
defect going to the validity of the security.
(4) If it is shown that a defense or defect exists, the
plaintiff has the burden of establishing that the plaintiff or
some person under whom the plaintiff claims is a person against
whom the defense or defect cannot be asserted.
Sec. 15. [336.8-115] [SECURITIES INTERMEDIARY AND OTHERS
NOT LIABLE TO ADVERSE CLAIMANT.]
A securities intermediary that has transferred a financial
asset pursuant to an effective entitlement order, or a broker or
other agent or bailee that has dealt with a financial asset at
the direction of its customer or principal, is not liable to a
person having an adverse claim to the financial asset, unless
the securities intermediary, or broker or other agent or bailee:
(1) took the action after it had been served with an
injunction, restraining order, or other legal process enjoining
it from doing so, issued by a court of competent jurisdiction,
and had a reasonable opportunity to act on the injunction,
restraining order, or other legal process; or
(2) acted in collusion with the wrongdoer in violating the
rights of the adverse claimant; or
(3) in the case of a security certificate that has been
stolen, acted with notice of the adverse claim.
Sec. 16. [336.8-116] [SECURITIES INTERMEDIARY AS PURCHASER
FOR VALUE.]
A securities intermediary that receives a financial asset
and establishes a security entitlement to the financial asset in
favor of an entitlement holder is a purchaser for value of the
financial asset. A securities intermediary that acquires a
security entitlement to a financial asset from another
securities intermediary acquires the security entitlement for
value if the securities intermediary acquiring the security
entitlement establishes a security entitlement to the financial
asset in favor of an entitlement holder.
Part 2
ISSUE AND ISSUER
Sec. 17. [336.8-201] [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.
Sec. 18. [336.8-202] [ISSUER'S RESPONSIBILITY AND
DEFENSES; NOTICE OF DEFECT OR DEFENSE.]
(a) Even against a purchaser for value and without notice,
the terms of a certificated security include terms stated on the
certificate and terms made part of the security by reference on
the certificate to another instrument, indenture, or document or
to a constitution, statute, ordinance, rule, regulation, order,
or the like, to the extent the terms referred to do not conflict
with terms stated on the certificate. A reference under this
subsection does not of itself charge a purchaser for value with
notice of a defect going to the validity of the security, even
if the certificate expressly states that a person accepting it
admits notice. The terms of an uncertificated security include
those stated in any instrument, indenture, or document or in a
constitution, statute, ordinance, rule, regulation, order, or
the like, pursuant to which the security is issued.
(b) The following rules apply if an issuer asserts that a
security is not valid:
(1) A security other than one issued by a government or
governmental subdivision, agency, or instrumentality, even
though issued with a defect going to its validity, is valid in
the hands of a purchaser for value and without notice of the
particular defect unless the defect involves a violation of a
constitutional provision. In that case, the security is valid
in the hands of a purchaser for value and without notice of the
defect, other than one who takes by original issue.
(2) Paragraph (1) applies to an issuer that is a government
or governmental subdivision, agency, or instrumentality only if
there has been substantial compliance with the legal
requirements governing the issue or the issuer has received a
substantial consideration for the issue as a whole or for the
particular security and a stated purpose of the issue is one for
which the issuer has power to borrow money or issue the security.
(c) Except as otherwise provided in section 336.8-205, lack
of genuineness of a certificated security is a complete defense,
even against a purchaser for value and without notice.
(d) All other defenses of the issuer of a security,
including nondelivery and conditional delivery of a certificated
security, are ineffective against a purchaser for value who has
taken the certificated security without notice of the particular
defense.
(e) This section does not affect the right of a party to
cancel a contract for a security "when, as and if issued" or
"when distributed" in the event of a material change in the
character of the security that is the subject of the contract or
in the plan or arrangement pursuant to which the security is to
be issued or distributed.
(f) If a security is held by a securities intermediary
against whom an entitlement holder has a security entitlement
with respect to the security, the issuer may not assert any
defense that the issuer could not assert if the entitlement
holder held the security directly.
Sec. 19. [336.8-203] [STALENESS AS NOTICE OF DEFECT OR
DEFENSE.]
After an act or event, other than a call that has been
revoked, creating a right to immediate performance of the
principal obligation represented by a certificated security or
setting a date on or after which the security is to be presented
or surrendered for redemption or exchange, a purchaser is
charged with notice of any defect in its issue or defense of the
issuer, if the act or event:
(1) requires the payment of money, the delivery of a
certificated security, the registration of transfer of an
uncertificated security, or any of them on presentation or
surrender of the security certificate, the money or security is
available on the date set for payment or exchange, and the
purchaser takes the security more than one year after that date;
or
(2) is not covered by paragraph (1) and the purchaser takes
the security more than two years after the date set for
surrender or presentation or the date on which performance
became due.
Sec. 20. [336.8-204] [EFFECT OF ISSUER'S RESTRICTION ON
TRANSFER.]
A restriction on transfer of a security imposed by the
issuer, even if otherwise lawful, is ineffective against a
person without knowledge of the restriction unless:
(1) the security is certificated and the restriction is
noted conspicuously on the security certificate; or
(2) the security is uncertificated and the registered owner
has been notified of the restriction.
Sec. 21. [336.8-205] [EFFECT OF UNAUTHORIZED SIGNATURE ON
SECURITY CERTIFICATE.]
An unauthorized signature placed on a security certificate
before or in the course of issue is ineffective, but the
signature is effective in favor of a purchaser for value of the
certificated security if the purchaser is without notice of the
lack of authority and the signing has been done by:
(1) an authenticating trustee, registrar, transfer agent,
or other person entrusted by the issuer with the signing of the
security certificate or of similar security certificates, or the
immediate preparation for signing of any of them; or
(2) an employee of the issuer, or of any of the persons
listed in paragraph (1), entrusted with responsible handling of
the security certificate.
Sec. 22. [336.8-206] [COMPLETION OR ALTERATION OF SECURITY
CERTIFICATE.]
(a) If a security certificate contains the signatures
necessary to its issue or transfer but is incomplete in any
other respect:
(1) any person may complete it by filling in the blanks as
authorized; and (2) even if the blanks are incorrectly filled
in, the security certificate as completed is enforceable by a
purchaser who took it for value and without notice of the
incorrectness.
(b) A complete security certificate that has been
improperly altered, even if fraudulently, remains enforceable,
but only according to its original terms.
Sec. 23. [336.8-207] [RIGHTS AND DUTIES OF ISSUER WITH
RESPECT TO REGISTERED OWNERS.]
(a) Before due presentment for registration of transfer of
a certificated security in registered form or of an instruction
requesting registration of transfer of a uncertificated
security, the issuer or indenture trustee may treat the
registered owner as the person exclusively entitled to vote,
receive notifications, and otherwise exercise all the rights and
power of an owner.
(b) This article does not affect the liability of the
registered owner of a security for a call, assessment, or the
like.
Sec. 24. [336.8-208] [EFFECT OF SIGNATURE OF
AUTHENTICATING TRUSTEE, REGISTRAR, OR TRANSFER AGENT.]
(a) A person signing a security certificate as
authenticating trustee, registrar, transfer agent, or the like,
warrants to a purchaser for value of the certificated security,
if the purchaser is without notice of a particular defect, that:
(1) the certificate is genuine;
(2) the person's own participation in the issue of the
security is within the person's capacity and within the scope of
the authority received by the person from the issuer; and
(3) the person has reasonable grounds to believe that the
certificated security is in the form and within the amount the
issuer is authorized to issue.
(b) Unless otherwise agreed, a person signing under
subsection (a) does not assume responsibility for the validity
of the security in other respects.
Sec 25. [336.8-209] [ISSUER'S LIEN.]
A lien in favor of an issuer upon a certificated security
is valid against a purchaser only if the right of the issuer to
the lien is noted conspicuously on the security certificate.
Sec. 26. [336.8-210] [OVERISSUE.]
(a) In this section, "overissue" means the issue of
securities in excess of the amount the issuer has corporate
power to issue, but an overissue does not occur if appropriate
action has cured the overissue.
(b) Except as otherwise provided in subsections (c) and
(d), the provisions of this article which validate a security or
compel its issue or reissue do not apply to the extent that
validation, issue, or reissue would result in overissue.
(c) If an identical security not constituting an overissue
is reasonably available for purchase, a person entitled to issue
or validation may compel the issuer to purchase the security and
deliver it if certificated, or register its transfer if
uncertificated, against surrender of any security certificate
the person holds.
(d) If a security is not reasonably available for purchase,
a person entitled to issue or validation may recover from the
issuer the price the person or the last purchaser for value paid
for it with interest from the date of the person's demand.
Part 3
TRANSFER OF CERTIFICATED
AND UNCERTIFICATED SECURITIES
Sec. 27. [336.8-301] [DELIVERY.]
(a) Delivery of a certificated security to a purchaser
occurs when:
(1) the purchaser acquires possession of the security
certificate;
(2) another person, other than a securities intermediary,
either acquires possession of the security certificate on behalf
of the purchaser or, having previously acquired possession of
the certificate, acknowledges that it holds for the purchaser;
or
(3) a securities intermediary acting on behalf of the
purchaser acquires possession of the security certificate, only
if the certificate is in registered form and has been specially
endorsed to the purchaser by an effective endorsement.
(b) Delivery of an uncertificated security to a purchaser
occurs when:
(1) the issuer registers the purchaser as the registered
owner, upon original issue or registration of transfer; or
(2) another person, other than a securities intermediary,
either becomes the registered owner of the uncertificated
security on behalf of the purchaser or, having previously become
the registered owner, acknowledges that it holds for the
purchaser.
Sec 28. [336.8-302] [RIGHTS OF PURCHASER.]
(a) Except as otherwise provided in subsections (b) and
(c), upon delivery of a certificated or uncertificated security
to a purchaser, the purchaser acquires all rights in the
security that the transferor had or had power to transfer.
(b) A purchaser of a limited interest acquires rights only
to the extent of the interest purchased.
(c) A purchaser of a certificated security who as a
previous holder had notice of an adverse claim does not improve
its position by taking from a protected purchaser.
Sec. 29. [336.8-303] [PROTECTED PURCHASER.]
(a) "Protected purchaser" means a purchaser of a
certificated or uncertificated security, or of an interest
therein, who:
(1) gives value;
(2) does not have notice of any adverse claim to the
security; and
(3) obtains control of the certificated or uncertificated
security.
(b) In addition to acquiring the rights of a purchaser, a
protected purchaser also acquires its interest in the security
free of any adverse claim.
Sec. 30. [336.8-304] [ENDORSEMENT.]
(a) An endorsement may be in blank or special. An
endorsement in blank includes an endorsement to bearer. A
special endorsement specifies to whom a security is to be
transferred or who has power to transfer it. A holder may
convert a blank endorsement to a special endorsement.
(b) An endorsement purporting to be only part of a
security certificate representing units intended by the issuer
to be separately transferable is effective to the extent of the
endorsement.
(c) An endorsement, whether special or in blank, does not
constitute a transfer until delivery of the certificate on which
it appears or, if the endorsement is on a separate document,
until delivery of both the document and the certificate.
(d) If a security certificate in registered form has been
delivered to a purchaser without a necessary endorsement, the
purchaser may become a protected purchaser only when the
endorsement is supplied. However, against a transferor, a
transfer is complete upon delivery and the purchaser has a
specifically enforceable right to have any necessary endorsement
supplied.
(e) An endorsement of a security certificate in bearer form
may give notice of an adverse claim to the certificate, but it
does not otherwise affect a right to registration that the
holder possesses.
(f) Unless otherwise agreed, a person making an endorsement
assumes only the obligations provided in section 336.8-108 and
not an obligation that the security will be honored by the
issuer.
Sec. 31. [336.8-305] [INSTRUCTION.]
(a) If an instruction has been originated by an appropriate
person but is incomplete in any other respect, any person may
complete it as authorized and the issuer may rely on it as
completed, even though it has been completed incorrectly.
(b) Unless otherwise agreed, a person initiating an
instruction assumes only the obligations imposed by section
336.8-108 and not an obligation that the security will be
honored by the issuer.
Sec. 32. [336.8-306] [EFFECT OF GUARANTEEING SIGNATURE,
ENDORSEMENT, OR INSTRUCTION.]
(a) A person who guarantees a signature of an endorser of a
security certificate warrants that at the time of signing:
(1) the signature was genuine;
(2) the signer was an appropriate person to endorse, or if
the signature is by an agent, the agent had actual authority to
act on behalf of the appropriate person; and
(3) the signer had legal capability to sign.
(b) A person who guarantees a signature of the originator
of an instruction warrants that at the time of signing:
(1) the signature was genuine;
(2) the signer was an appropriate person to originate the
instruction, or if the signature is by an agent, the agent had
actual authority to act on behalf of the appropriate person, if
the person specified in the instruction as the registered owner
was, in fact, the registered owner, as to which fact the
signature guarantor does not make a warranty; and
(3) the signer had legal capacity to sign.
(c) A person who specially guarantees the signature of an
originator of an instruction makes the warranties of a signature
guarantor under subsection (b) and also warrants that at the
time the instruction is presented to the issuer:
(1) the person specified in the instruction as the
registered owner of the uncertificated security will be the
registered owner; and
(2) the transfer of the uncertificated security requested
in the instruction will be registered by the issuer free from
all liens, security interests, restrictions, and claims other
than those specified in the instruction.
(d) A guarantor under subsections (a) and (b) or a special
guarantor under subsection (c) does not otherwise warrant the
rightfulness of the transfer.
(e) A person who guarantees an endorsement of a security
certificate makes the warranties of a signature guarantor under
subsection (a) and also warrants the rightfulness of the
transfer in all respects.
(f) A person who guarantees an instruction requesting the
transfer of an uncertificated security makes the warranties of a
special signature guarantor under subsection (c) and also
warrants the rightfulness of the transfer in all respects.
(g) An issuer may not require a special guaranty of
signature, a guaranty of endorsement, or a guaranty of
instruction as a condition to registration of transfer.
(h) The warranties under this section are made to a person
taking or dealing with the security in reliance on the guaranty,
and the guarantor is liable to the person for loss resulting
from their breach. An endorser or originator of an instruction
whose signature, endorsement, or instruction has been guaranteed
is liable to a guarantor for any loss suffered by the guarantor
as a result of breach of the warranties of the guarantor.
Sec. 33. [336.8-307] [PURCHASER'S RIGHT TO REQUISITES FOR
REGISTRATION OF TRANSFER.]
Unless otherwise agreed, the transferor of a security on
due demand shall supply the purchaser with proof of authority to
transfer or with any other requisite necessary to obtain
registration of the transfer of the security, but if the
transfer is not for value, a transferor need not comply unless
the purchaser pays the necessary expenses. If the transferor
fails within a reasonable time to comply with the demand, the
purchaser may reject or rescind the transfer.
Part 4
REGISTRATION
Sec. 34. [336.8-401] [DUTY OF ISSUER TO REGISTER
TRANSFER.]
(a) If a certificated security in registered form is
presented to an issuer with a request to register transfer or an
instruction is presented to an issuer with a request to register
transfer of an uncertificated security, the issuer shall
register the transfer as requested if:
(1) under the terms of the security, the person seeking
registration of transfer is eligible to have the security
registered in its name;
(2) the endorsement or instruction is made by the
appropriate person or by an agent who has actual authority to
act on behalf of the appropriate person;
(3) reasonable assurance is given that the endorsement or
instruction is genuine and authorized (section 336.8-402);
(4) any applicable law relating to the collection of taxes
has been complied with;
(5) the transfer does not violate any restriction on
transfer imposed by the issuer in accordance with section
336.8-204;
(6) a demand that the issuer not register transfer has not
become effective under section 336.8-403, or the issuer has
complied with section 336.8-403(b) but no legal process or
indemnity bond is obtained as provided in section 336.8-403(d);
and
(7) the transfer is in fact rightful or is to a protected
purchaser.
(b) If an issuer is under a duty to register a transfer of
a security, the issuer is liable to a person presenting a
certificated security or an instruction for registration or to
the person's principal for loss resulting from unreasonable
delay in registration or failure or refusal to register the
transfer.
Sec. 35. [336.8-402] [ASSURANCE THAT ENDORSEMENT OR
INSTRUCTION IS EFFECTIVE.]
(a) An issuer may require the following assurance that each
necessary endorsement of each instruction is genuine and
authorized:
(1) in all cases, a guaranty of the signature of the person
making an endorsement or originating an instruction including,
in the case of an instruction, reasonable assurance of identity;
(2) if the endorsement is made or the instruction is
originated by an agent, appropriate assurance of actual
authority to sign;
(3) if the endorsement is made or the instruction is
originated by a fiduciary pursuant to section 336.8-107(a)(4) or
(a)(5), appropriate evidence of appointment or incumbency;
(4) if there is more than one fiduciary, reasonable
assurance that all who are required to sign have done so; and
(5) if the endorsement is made or the instruction is
originated by a person not covered by another provision of this
subsection, assurance appropriate to the case corresponding as
nearly as may be to the provisions of this subsection.
(b) An issuer may elect to require reasonable assurance
beyond that specified in this section.
(c) In this section:
(1) "Guaranty of the signature" means a guaranty signed by
or on behalf of a person reasonably believed by the issuer to be
responsible. An issuer may adopt standards with respect to
responsibility if they are not manifestly unreasonable.
(2) "Appropriate evidence of appointment or incumbency"
means:
(i) in the case of a fiduciary appointed or qualified by a
court, a certificate issued by or under the direction or
supervision of the court or an officer thereof and dated within
60 days before the date of presentation for transfer; or
(ii) in any other case, a copy of a document showing the
appointment or a certificate issued by or on behalf of a person
reasonably believed by an issuer to be responsible or, in the
absence of that document or certificate, other evidence the
issuer reasonably considered appropriate.
Sec. 36. [336.8-403] [DEMAND THAT ISSUER NOT REGISTER
TRANSFER.]
(a) A person who is an appropriate person to make an
endorsement or originate an instruction may demand that the
issuer not register transfer of a security by communicating to
the issuer a notification that identifies the registered owner
and the issue of which the security is a part and provides an
address for communications directed to the person making the
demand. The demand is effective only if it is received by the
issuer at a time and in a manner affording the issuer reasonable
opportunity to act on it.
(b) If a certificated security in registered form is
presented to an issuer with a request to register transfer or an
instruction is presented to an issuer with a request to register
transfer of an uncertificated security after a demand that the
issuer not register transfer has become effective, the issuer
shall promptly communicate to (i) the person who initiated the
demand at the address provided in the demand and (ii) the person
who presented the security for registration of transfer or
initiated the instruction requesting registration of transfer a
notification stating that:
(1) the certificated security has been presented for
registration of transfer or the instruction for registration of
transfer of the uncertificated security has been received;
(2) a demand that the issuer not register transfer had
previously been received; and
(3) the issuer will withhold registration of transfer for a
period of time stated in the notification in order to provide
the person who initiated the demand an opportunity to obtain
legal process or an indemnity bond.
(c) The period described in subsection (b)(3) may not
exceed 30 days after the date of communication of the
notification. A shorter period may be specified by the issuer
if it is not manifestly unreasonable.
(d) An issuer is not liable to a person who initiated a
demand that the issuer not register transfer for any loss the
person suffers as a result of registration of a transfer
pursuant to an effective endorsement or instruction if the
person who initiated the demand does not, within the time stated
in the issuer's communication, either:
(1) obtain an appropriate restraining order, injunction, or
other process from a court of competent jurisdiction enjoining
the issuer from registering the transfer; or
(2) file with the issuer an indemnity bond, sufficient in
the issuer's judgment to protect the issuer and any transfer
agent, registrar, or other agent of the issuer involved from any
loss it or they may suffer by refusing to register the transfer.
(e) This section does not relieve an issuer from liability
for registering transfer pursuant to an endorsement or
instruction that was not effective.
Sec. 37. [336.8-404] [WRONGFUL REGISTRATION.]
(a) Except as otherwise provided in section 336.8-406, an
issuer is liable for wrongful registration of transfer if the
issuer has registered a transfer of a security to a person not
entitled to it, and the transfer was registered:
(1) pursuant to an ineffective endorsement or instruction;
(2) after a demand that the issuer not register transfer
became effective under section 336.8-403(a) and the issuer did
not comply with section 336.8-403(b);
(3) after the issuer had been served with an injunction,
restraining order, or other legal process enjoining it from
registering the transfer, issued by a court of competent
jurisdiction, and the issuer had a reasonable opportunity to act
on the injunction, restraining order, or other legal process; or
(4) by an issuer acting in collusion with the wrongdoer.
(b) An issuer that is liable for wrongful registration of
transfer under subsection (a) on demand shall provide the person
entitled to the security with a like certificated or
uncertificated security, and any payments or distributions that
the person did not receive as a result of the wrongful
registration. If an overissue would result, the issuer's
liability to provide the person with a like security is governed
by section 336.8-210.
(c) Except as otherwise provided in subsection (a) or in a
law relating to the collection of taxes, an issuer is not liable
to an owner or other person suffering loss as a result of the
registration of a transfer of a security if registration was
made pursuant to an effective endorsement or instruction.
Sec. 38. [336.8-405] [REPLACEMENT OF LOST, DESTROYED, OR
WRONGFULLY TAKEN SECURITY CERTIFICATE.]
(a) If an owner of a certificated security, whether in
registered or bearer form, claims that the certificate has been
lost, destroyed, or wrongfully taken, the issuer shall issue a
new certificate if the owner:
(1) so requests before the issuer has notice that the
certificate has been acquired by a protected purchaser;
(2) files with the issuer a sufficient indemnity bond; and
(3) satisfies other reasonable requirements imposed by the
issuer.
(b) If, after the issue of a new security certificate, a
protected purchaser of the original certificate presents it for
registration of transfer, the issuer shall register the transfer
unless an overissue would result. In that case, the issuer's
liability is governed by section 336.8-210. In addition to any
rights on the indemnity bond, an issuer may recover the new
certificate from a person to whom it was issued or any person
taking under that person, except a protected purchaser.
Sec. 39. [336.8-406] [OBLIGATION TO NOTIFY ISSUER OF LOST,
DESTROYED, OR WRONGFULLY TAKEN SECURITY CERTIFICATE.]
If a security certificate has been lost, apparently
destroyed, or wrongfully taken, and the owner fails to notify
the issuer of that fact within a reasonable time after the owner
has notice of it and the issuer registers a transfer of the
security before receiving notification, the owner may not assert
against the issuer a claim for registering the transfer under
section 336.8-404 or a claim to a new security certificate under
section 336.8-405.
Sec. 40. [336.8-407] [AUTHENTICATING TRUSTEE, TRANSFER
AGENT, AND REGISTRAR.]
A person acting as authenticating trustee, transfer agent,
registrar, or other agent for an issuer in the registration of a
transfer of its securities, in the issue of new security
certificates or uncertificated securities, or in the
cancellation of surrendered security certificates has the same
obligation to the holder or owner of a certificated or
uncertificated security with regard to the particular functions
performed as the issuer has in regard to those functions.
Part 5
SECURITY ENTITLEMENTS
Sec. 41. [336.8-501] [SECURITIES ACCOUNT; ACQUISITION OF
SECURITY ENTITLEMENT FROM SECURITIES INTERMEDIARY.]
(a) "Securities account" means an account to which a
financial asset is or may be credited in accordance with an
agreement under which the person maintaining the account
undertakes to treat the person for whom the account is
maintained as entitled to exercise the rights that comprise the
financial asset.
(b) Except as otherwise provided in subsections (d) and
(e), a person acquires a security entitlement if a securities
intermediary:
(1) indicates by book entry that a financial asset has been
credited to the person's securities account;
(2) receives a financial asset from the person or acquires
a financial asset for the person and, in either case, accepts it
for credit to the person's securities account; or
(3) becomes obligated under other law, regulation, or rule
to credit a financial asset to the person's securities account.
(c) If a condition of subsection (b) has been met, a person
has a security entitlement even though the securities
intermediary does not itself hold the financial asset.
(d) If a securities intermediary holds a financial asset
for another person, and the financial asset is registered in the
name of, payable to the order of, or specially endorsed to the
other person, and has not been endorsed to the securities
intermediary or in blank, the other person is treated as holding
the financial asset directly rather than as having a security
entitlement with respect to the financial asset.
(e) Issuance of a security is not establishment of a
security entitlement.
Sec. 42. [336.8-502] [ASSERTION OF ADVERSE CLAIM AGAINST
ENTITLEMENT HOLDER.]
An action based on an adverse claim to a financial asset,
whether framed in conversion, replevin, constructive trust,
equitable lien, or other theory, may not be asserted against a
person who acquires a security entitlement under section
336.8-501 for value and without notice of the adverse claim.
Sec. 43. [336.8-503] [PROPERTY INTEREST OF ENTITLEMENT
HOLDER IN FINANCIAL ASSET HELD BY SECURITIES INTERMEDIARY.]
(a) To the extent necessary for a securities intermediary
to satisfy all security entitlements with respect to a
particular financial asset, all interests in that financial
asset held by the securities intermediary are held by the
securities intermediary for the entitlement holders, are not
property of the securities intermediary, and are not subject to
claims of creditors of the securities intermediary, except as
otherwise provided in section 336.8-511.
(b) An entitlement holder's property interest with respect
to a particular financial asset under subsection (a) is a pro
rata property interest in all interests in that financial asset
held by the securities intermediary, without regard to the time
the entitlement holder acquired the security entitlement or the
time the securities intermediary acquired the interest in that
financial asset.
(c) An entitlement holder's property interest with respect
to a particular financial asset under subsection (a) may be
enforced against the securities intermediary only by exercise of
the entitlement holder's rights under sections 336.8-505 through
336.8-508.
(d) An entitlement holder's property interest with respect
to a particular financial asset under subsection (a) may be
enforced against a purchaser of the financial asset or interest
therein only if:
(1) insolvency proceedings have been initiated by or
against the securities intermediary;
(2) the securities intermediary does not have sufficient
interests in the financial asset to satisfy the security
entitlements of all of its entitlement holders to that financial
asset;
(3) the securities intermediary violated its obligations
under section 336.8-504 by transferring the financial asset or
interest therein to the purchaser; and
(4) the purchaser is not protected under subsection (e).
The trustee or other liquidator, acting on behalf of all
entitlement holders having security entitlements with respect to
a particular financial asset, may recover the financial asset,
or interest therein, from the purchaser. If the trustee or
other liquidator elects not to pursue that right, an entitlement
holder whose security entitlement remains unsatisfied has the
right to recover its interest in the financial asset from the
purchaser.
(e) An action based on the entitlement holder's property
interest with respect to a particular financial asset under
subsection (a), whether framed in conversion, replevin,
constructive trust, equitable lien, or other theory, may not be
asserted against any purchaser of a financial asset or interest
therein who gives value, obtains control, and does not act in
collusion with the securities intermediary in violating the
securities intermediary's obligations under section 336.8-504.
Sec. 44. [336.8-504] [DUTY OF SECURITIES INTERMEDIARY TO
MAINTAIN FINANCIAL ASSET.]
(a) A securities intermediary shall promptly obtain and
thereafter maintain a financial asset in a quantity
corresponding to the aggregate of all security entitlements it
has established in favor of its entitlement holders with respect
to that financial asset. The securities intermediary may
maintain those financial assets directly or through one or more
other securities intermediaries.
(b) Except to the extent otherwise agreed to by its
entitlement holder, a securities intermediary may not grant any
security interests in a financial asset it is obligated to
maintain pursuant to subsection (a).
(c) A securities intermediary satisfies the duty in
subsection (a) if:
(1) the securities intermediary acts with respect to the
duty as agreed upon by the entitlement holder and the securities
intermediary; or
(2) in the absence of agreement, the securities
intermediary exercises due care in accordance with reasonable
commercial standards to obtain and maintain the financial asset.
(d) This section does not apply to a clearing corporation
that is itself the obligor of an option or similar obligation to
which its entitlement holders have security entitlements.
Sec. 45. [336.8-505] [DUTY OF SECURITIES INTERMEDIARY WITH
RESPECT TO PAYMENTS AND DISTRIBUTIONS.]
(a) A securities intermediary shall take action to obtain a
payment or distribution made by the issuer of a financial
asset. A securities intermediary satisfies the duty if:
(1) the securities intermediary acts with respect to the
duty as agreed upon by the entitlement holder and the securities
intermediary; or
(2) in the absence of agreement, the securities
intermediary exercises due care in accordance with reasonable
commercial standards to attempt to obtain the payment or
distribution.
(b) A securities intermediary is obligated to its
entitlement holder for a payment or distribution made by the
issuer of a financial asset if the payment or distribution is
received by the securities intermediary.
Sec. 46. [336.8-506] [DUTY OF SECURITIES INTERMEDIARY TO
EXERCISE RIGHTS AS DIRECTED BY ENTITLEMENT HOLDER.]
A securities intermediary shall exercise rights with
respect to a financial asset if directed to do so by an
entitlement holder. A securities intermediary satisfies the
duty if:
(1) the securities intermediary acts with respect to the
duty as agreed upon by the entitlement holder and the securities
intermediary; or
(2) in the absence of agreement, the securities
intermediary either places the entitlement holder in a position
to exercise the rights directly or exercises due care in
accordance with reasonable commercial standards to follow the
direction of the entitlement holder.
Sec. 47. [336.8-507] [DUTY OF SECURITIES INTERMEDIARY TO
COMPLY WITH ENTITLEMENT ORDER.]
(a) A securities intermediary shall comply with an
entitlement order if the entitlement order is originated by the
appropriate person, the securities intermediary has had
reasonable opportunity to assure itself that the entitlement
order is genuine and authorized, and the securities intermediary
has had reasonable opportunity to comply with the entitlement
order. A securities intermediary satisfies the duty if:
(1) the securities intermediary acts with respect to the
duty as agreed upon by the entitlement holder and the securities
intermediary; or
(2) in the absence of agreement, the securities
intermediary exercises due care in accordance with reasonable
commercial standards to comply with the entitlement order.
(b) If a securities intermediary transfers a financial
asset pursuant to an ineffective entitlement order, the
securities intermediary shall reestablish a security entitlement
in favor of the person entitled to it, and pay or credit any
payments or distributions that the person did not receive as a
result of the wrongful transfer. If the securities intermediary
does not reestablish a security entitlement, the securities
intermediary is liable to the entitlement holder for damages.
Sec. 48. [336.8-508] [DUTY OF SECURITIES INTERMEDIARY TO
CHANGE ENTITLEMENT HOLDER'S POSITION TO OTHER FORM OF SECURITY
HOLDING.]
A securities intermediary shall act at the direction of an
entitlement holder to change a security entitlement into another
available form of holding for which the entitlement holder is
eligible, or to cause the financial asset to be transferred to a
securities account of the entitlement holder with another
securities intermediary. A securities intermediary satisfies
the duty if:
(1) the securities intermediary acts as agreed upon by the
entitlement holder and the securities intermediary; or
(2) in the absence of agreement, the securities
intermediary exercises due care in accordance with reasonable
commercial standards to follow the direction of the entitlement
holder.
Sec. 49. [336.8-509] [SPECIFICATION OF DUTIES OF
SECURITIES INTERMEDIARY BY OTHER STATUTE OR REGULATION; MANNER
OF PERFORMANCE OF DUTIES OF SECURITIES INTERMEDIARY AND EXERCISE
OF RIGHTS OF ENTITLEMENT HOLDER.]
(a) If the substance of a duty imposed upon a securities
intermediary by sections 336.8-504 through 336.8-508 is the
subject of other statute, regulation, or rule, compliance with
that statute, regulation, or rule satisfies the duty.
(b) To the extent that specific standards for the
performance of the duties of a securities intermediary or the
exercise of the rights of an entitlement holder are not
specified by other statute, regulation, or rule or by agreement
between the securities intermediary and entitlement holder, the
securities intermediary shall perform its duties and the
entitlement holder shall exercise its rights in a commercially
reasonable manner.
(c) The obligation of a securities intermediary to perform
the duties imposed by sections 336.8-504 through 336.8-508 is
subject to:
(1) rights of the securities intermediary arising out of a
security interest under a security agreement with the
entitlement holder or otherwise; and
(2) rights of the securities intermediary under other law,
regulation, rule, or agreement to withhold performance of its
duties as a result of unfulfilled obligations of the entitlement
holder to the securities intermediary.
Sec. 50. [336.8-510] [RIGHTS OF PURCHASER OF SECURITY
ENTITLEMENT FROM ENTITLEMENT HOLDER.]
(a) An action based on an adverse claim to a financial
asset or security entitlement, whether framed in conversion,
replevin, constructive trust, equitable lien, or other theory,
may not be asserted against a person who purchases a security
entitlement, or an interest therein, from an entitlement holder
if the purchaser gives value, does not have notice of the
adverse claim, and obtains control.
(b) If an adverse claim could not have been asserted
against an entitlement holder under section 336.8-502, the
adverse claim cannot be asserted against a person who purchases
a security entitlement, or an interest therein, from the
entitlement holder.
(c) In a case not covered by the priority rules in article
9, a purchaser for value of a security entitlement, or an
interest therein, who obtains control has priority over a
purchaser of a security entitlement, or an interest therein, who
does not obtain control. Purchasers who have control rank
equally, except that a securities intermediary as purchaser has
priority over a conflicting purchaser who has control, unless
otherwise agreed by the securities intermediary.
Sec. 51. [336.8-511] [PRIORITY AMONG SECURITY INTERESTS
AND ENTITLEMENT HOLDERS.]
(a) Except as otherwise provided in subsections (b) and
(c), if a securities intermediary does not have sufficient
interests in a particular financial asset to satisfy both its
obligations to entitlement holders who have security
entitlements to that financial asset and its obligation to a
creditor of the securities intermediary who has a security
interest in that financial asset, the claims of entitlement
holders, other than the creditor, have priority over the claim
of the creditor.
(b) A claim of a creditor of a securities intermediary who
has a security interest in a financial asset held by a
securities intermediary has priority over claims of the
securities intermediary's entitlement holders who have security
entitlements with respect to that financial asset if the
creditor has control over the financial asset.
(c) If a clearing corporation does not have sufficient
financial assets to satisfy both its obligations to entitlement
holders who have security entitlements with respect to a
financial asset and its obligation to a creditor of the clearing
corporation who has a security interest in that financial asset,
the claim of the creditor has priority over the claims of
entitlement holders.
Part 6
TRANSITION PROVISIONS for Revised Article 8
and CONFORMING AMENDMENTS to Articles 1, 5, 9, and 10
Sec. 52. [336.8-601] [EFFECTIVE DATE.]
This act takes effect January 1, 1996.
Sec. 53. [336.8-602] [REPEALS.]
Minnesota Statutes 1994, sections 336.8-101; 336.8-102;
336.8-103; 336.8-104; 336.8-105; 336.8-106; 336.8-107;
336.8-108; 336.8-201; 336.8-202; 336.8-203; 336.8-204;
336.8-205; 336.8-206; 336.8-207; 336.8-208; 336.8-301;
336.8-302; 336.8-303; 336.8-304; 336.8-305; 336.8-306;
336.8-307; 336.8-308; 336.8-309; 336.8-310; 336.8-311;
336.8-312; 336.8-313; 336.8-314; 336.8-315; 336.8-316;
336.8-317; 336.8-318; 336.8-319; 336.8-320; 336.8-321;
336.8-401; 336.8-402; 336.8-403; 336.8-404; 336.8-405;
336.8-406; 336.8-407; and 336.8-408, are repealed.
Sec. 54. [336.8-603] [SAVINGS CLAUSE.]
(a) This act does not affect an action or proceeding
commenced before this act takes effect.
(b) If a security interest in a security is perfected at
the date this act takes effect, and the action by which the
security interest was perfected would suffice to perfect a
security interest under this act, no further action is required
to continue perfection. If a security interest in a security is
perfected at the date this act takes effect but the action by
which the security interest was perfected would not suffice to
perfect a security interest under this act, the security
interest remains perfected for a period of four months after the
effective date and continues perfected thereafter if appropriate
action to perfect under this act is taken within that period.
If a security interest is perfected at the date this act takes
effect and the security interest can be perfected by filing
under this act, a financing statement signed by the secured
party instead of the debtor may be filed within that period to
continue perfection or thereafter to perfect.
ARTICLE 2
Conforming Amendments to Article 9
Section 1. Minnesota Statutes 1994, section 336.9-103, is
amended to read:
336.9-103 [PERFECTION OF SECURITY INTERESTS IN MULTIPLE
STATE TRANSACTIONS.]
(1) Documents, instruments and ordinary goods.
(a) This subsection applies to documents and instruments
and to goods other than those covered by a certificate of title
described in subsection (2), mobile goods described in
subsection (3), and minerals described in subsection (5).
(b) Except as otherwise provided in this subsection,
perfection and the effect of perfection or nonperfection of a
security interest in collateral are governed by the law of the
jurisdiction where the collateral is when the last event occurs
on which is based the assertion that the security interest is
perfected or unperfected.
(c) If the parties to a transaction creating a purchase
money security interest in goods in one jurisdiction understand
at the time that the security interest attaches that the goods
will be kept in another jurisdiction, then the law of the other
jurisdiction governs the perfection and the effect of perfection
or nonperfection of the security interest from the time it
attaches until 30 days after the debtor receives possession of
the goods and thereafter if the goods are taken to the other
jurisdiction before the end of the 30 day period.
(d) When collateral is brought into and kept in this state
while subject to a security interest perfected under the law of
the jurisdiction from which the collateral was removed, the
security interest remains perfected, but if action is required
by part 3 of this article to perfect the security interest,
(i) if the action is not taken before the expiration of the
period of perfection in the other jurisdiction or the end of
four months after the collateral is brought into this state,
whichever period first expires, the security interest becomes
unperfected at the end of that period and is thereafter deemed
to have been unperfected as against a person who became a
purchaser after removal;
(ii) if the action is taken before the expiration of the
period specified in subparagraph (i), the security interest
continues perfected thereafter;
(iii) for the purpose of priority over a buyer of consumer
goods (subsection (2) of section 336.9-307), the period of the
effectiveness of a filing in the jurisdiction from which the
collateral is removed is governed by the rules with respect to
perfection in subparagraphs (i) and (ii).
(2) Certificate of title.
(a) This subsection applies to goods covered by a
certificate of title issued under a statute of this state or of
another jurisdiction under the law of which indication of a
security interest on the certificate is required as a condition
of perfection.
(b) Except as otherwise provided in this subsection,
perfection and the effect of perfection or nonperfection of the
security interest are governed by the law (including the
conflict of laws rules) of the jurisdiction issuing the
certificate until four months after the goods are removed from
that jurisdiction and thereafter until the goods are registered
in another jurisdiction, but in any event not beyond surrender
of the certificate. After the expiration of that period, the
goods are not covered by the certificate of title within the
meaning of this section.
(c) Except with respect to the rights of a buyer described
in the next paragraph, a security interest, perfected in another
jurisdiction otherwise than by notation on a certificate of
title, in goods brought into this state and thereafter covered
by a certificate of title issued by this state is subject to the
rules stated in paragraph (d) of subsection (1).
(d) If goods are brought into this state while a security
interest therein is perfected in any manner under the law of the
jurisdiction from which the goods are removed and a certificate
of title is issued by this state and the certificate does not
show that the goods are subject to the security interest or that
they may be subject to security interests not shown on the
certificate, the security interest is subordinate to the rights
of a buyer of the goods who is not in the business of selling
goods of that kind to the extent that the buyer gives value and
receives delivery of the goods after issuance of the certificate
and without knowledge of the security interest.
(3) Accounts, general intangibles and mobile goods.
(a) This subsection applies to accounts (other than an
account described in subsection (5) on minerals) and general
intangibles (other than uncertificated securities) and to goods
which are mobile and which are of a type normally used in more
than one jurisdiction, such as motor vehicles, trailers, rolling
stock, airplanes, shipping containers, road building and
construction machinery and commercial harvesting machinery and
the like, if the goods are equipment or are inventory leased or
held for lease by the debtor to others, and are not covered by a
certificate of title described in subsection (2).
(b) The law (including the conflict of laws rules) of the
jurisdiction in which the debtor is located governs the
perfection and the effect of perfection or nonperfection of the
security interest.
(c) If, however, the debtor is located in a jurisdiction
which is not a part of the United States, and which does not
provide for perfection of the security interest by filing or
recording in that jurisdiction, the law of the jurisdiction in
the United States in which the debtor has its major executive
office in the United States governs the perfection and the
effect of perfection or nonperfection of the security interest
through filing. In the alternative, if the debtor is located in
a jurisdiction which is not a part of the United States or
Canada and the collateral is accounts or general intangibles for
money due or to become due, the security interest may be
perfected by notification to the account debtor. As used in
this paragraph, "United States" includes its territories and
possessions and the Commonwealth of Puerto Rico.
(d) A debtor shall be deemed located at the debtor's place
of business if the debtor has one, at the chief executive office
if there is more than one place of business, otherwise at the
debtor's residence. If, however, the debtor is a foreign air
carrier under the Federal Aviation Act of 1958, as amended, it
shall be deemed located at the designated office of the agent
upon whom service of process may be made on behalf of the
foreign air carrier.
(e) A security interest perfected under the law of the
jurisdiction of the location of the debtor is perfected until
the expiration of four months after a change of the debtor's
location to another jurisdiction, or until perfection would have
ceased by the law of the first jurisdiction, whichever period
first expires. Unless perfected in the new jurisdiction before
the end of that period, it becomes unperfected thereafter and is
deemed to have been unperfected as against a person who became a
purchaser after the change.
(4) Chattel paper.
The rules stated for goods in subsection (1) apply to a
possessory security interest in chattel paper. The rules stated
for accounts in subsection (3) apply to a nonpossessory security
interest in chattel paper, but the security interest may not be
perfected by notification to the account debtor.
(5) Minerals.
Perfection and the effect of perfection or nonperfection of
a security interest which is created by a debtor who has an
interest in minerals or the like (including oil and gas) before
extraction and which attaches thereto as extracted, or which
attaches to an account resulting from the sale thereof at the
wellhead or minehead are governed by the law (including the
conflict of laws rules) of the jurisdiction wherein the wellhead
or minehead is located.
(6) Uncertificated securities Investment property.
The law (including the conflict of laws rules) of the
jurisdiction of organization of the issuer governs the
perfection and the effect of perfection or nonperfection of a
security interest in uncertificated securities.
(a) This subsection applies to investment property.
(b) Except as otherwise provided in paragraph (f), during
the time that a security certificate is located in a
jurisdiction, perfection of a security interest, the effect of
perfection or nonperfection, and the priority of a security
interest in the certificated security represented thereby are
governed by the local law of that jurisdiction.
(c) Except as otherwise provided in paragraph (f),
perfection of a security interest, the effect of perfection or
nonperfection, and the priority of a security interest in an
uncertificated security are governed by the local law of the
issuer's jurisdiction as specified in section 336.8-110(d).
(d) Except as otherwise provided in paragraph (f),
perfection of a security interest, the effect of perfection or
nonperfection, and the priority of a security interest in a
security entitlement or securities account are governed by the
local law of the securities intermediary's jurisdiction as
specified in section 336.8-110(e).
(e) Except as otherwise provided in paragraph (f),
perfection of a security interest, the effect of perfection or
nonperfection, and the priority of a security interest in a
commodity contract or commodity account are governed by the
local law of the commodity intermediary's jurisdiction. The
following rules determine a "commodity intermediary's
jurisdiction" for purposes of this paragraph:
(i) If an agreement between the commodity intermediary and
commodity customer specifies that it is governed by the law of a
particular jurisdiction, that jurisdiction is the commodity
intermediary's jurisdiction.
(ii) If an agreement between the commodity intermediary and
commodity customer does not specify the governing law as
provided in subparagraph (i), but expressly specifies that the
commodity account is maintained at an office in a particular
jurisdiction, that jurisdiction is the commodity intermediary's
jurisdiction.
(iii) If an agreement between the commodity intermediary
and commodity customer does not specify a jurisdiction as
provided in subparagraph (i) or (ii), the commodity
intermediary's jurisdiction is the jurisdiction in which is
located the office identified in an account statement as the
office serving the commodity customer's account.
(iv) If an agreement between the commodity intermediary and
commodity customer does not specify a jurisdiction as provided
in subparagraph (i) or (ii) and an account statement does not
identify an office serving the commodity customer's account as
provided in subparagraph (iii), the commodity intermediary's
jurisdiction is the jurisdiction in which is located the chief
executive office of the commodity intermediary.
(f) Perfection of a security interest by filing, automatic
perfection of a security interest in investment property granted
by a broker or securities intermediary, and automatic perfection
of a security interest in a commodity contract or commodity
account granted by a commodity intermediary are governed by the
local law of the jurisdiction in which the debtor is located.
Sec. 2. Minnesota Statutes 1994, section 336.9-105, is
amended to read:
336.9-105 [DEFINITIONS AND INDEX OF DEFINITIONS.]
(1) In this article unless the context otherwise requires:
(a) "Account debtor" means the person who is obligated on
an account, chattel paper or general intangible;
(b) "Chattel paper" means a writing or writings which
evidence both a monetary obligation and a security interest in
or a lease of specific goods, but a charter or other contract
involving the use or hire of a vessel is not chattel paper.
When a transaction is evidenced both by such a security
agreement or a lease and by an instrument or a series of
instruments, the group of writings taken together constitutes
chattel paper;
(c) "Collateral" means the property subject to a security
interest, and includes accounts and chattel paper which have
been sold;
(d) "Debtor" means the person who owes payment or other
performance of the obligation secured, whether or not the person
owns or has rights in the collateral, and includes the seller of
accounts or chattel paper. Where the debtor and the owner of
the collateral are not the same person, the term "debtor" means
the owner of the collateral in any provision of the article
dealing with the collateral, the obligor in any provision
dealing with the obligation, and may include both where the
context so requires;
(e) "Deposit account" means a demand, time, savings,
passbook or like account maintained with a bank, savings and
loan association, credit union or like organization, other than
an account evidenced by a certificate of deposit;
(f) "Document" means document of title as defined in the
general definitions of article 1 (section 336.1-201) and a
receipt of the kind described in subsection (2) of section
336.7-201;
(g) "Encumbrance" includes real estate mortgages and other
liens on real estate and all other rights in real estate that
are not ownership interests;
(h) "Goods" includes all things which are movable at the
time the security interest attaches or which are fixtures
(section 336.9-313), but does not include money, documents,
instruments, investment property, accounts, chattel paper,
general intangibles, or minerals or the like (including oil and
gas) before extraction. "Goods" also include standing timber
which is to be cut and removed under a conveyance or contract
for sale, the unborn young of animals and growing crops;
(i) "Instrument" means a negotiable instrument (defined in
section 336.3-104), or a certificated security (defined in
section 336.8-102) or any other writing which evidences a right
to the payment of money and is not itself a security agreement
or lease and is of a type which is in ordinary course of
business transferred by delivery with any necessary endorsement
or assignment. The term does not include investment property;
(j) "Mortgage" means a consensual interest created by a
real estate mortgage, a trust deed on real estate, or the like;
(k) An advance is made "pursuant to commitment" if the
secured party has made a binding promise to make it, 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 the obligation;
(l) "Security agreement" means an agreement which creates
or provides for a security interest;
(m) "Secured party" means a lender, seller or other person
in whose favor there is a security interest, including a person
to whom accounts or chattel paper have been sold. When the
holders of obligations issued under an indenture of trust,
equipment trust agreement or the like are represented by a
trustee or other person, the representative is the secured
party; and
(n) "Transmitting utility" means any person engaged in the
railroad, street railway or trolley bus business, the electric
or electronics communications transmission business, the
transmission of goods by pipeline, or the transmission or the
production and transmission of electricity, steam, gas or water,
or the provision of sewer service. Any person filing a
financing statement under this article and under authority of
the provisions of Minnesota Statutes 1974, Sections 300.111 to
300.115 shall be deemed a "transmitting utility" hereunder.
(2) Other definitions applying to this article and the
sections in which they appear are:
"Account," section 336.9-106.
"Attach," section 336.9-203.
"Commodity contract," section 336.9-115.
"Commodity customer," section 336.9-115.
"Commodity intermediary," section 336.9-115.
"Construction mortgage," section 336.9-313(1).
"Consumer goods," section 336.9-109(1).
"Control," section 336.9-115.
"Equipment," section 336.9-109(2).
"Farm products," section 336.9-109(3).
"Fixture," section 336.9-313.
"Fixture filing," section 336.9-313.
"General intangibles," section 336.9-106.
"Inventory," section 336.9-109(4).
"Investment property," section 336.9-115.
"Lien creditor," section 336.9-301(3).
"Motor vehicle," section 336.9-401(7).
"Proceeds," section 336.9-306(1).
"Purchase money security interest," section 336.9-107.
"United States," section 336.9-103.
(3) The following definitions in other articles apply to
this article:
"Broker," section 336.8-102.
"Certificated security," section 336.8-102.
"Check," section 336.3-104.
"Clearing corporation," section 336.8-102.
"Contract for sale," section 336.2-106.
"Control," section 336.8-106.
"Delivery," section 336.8-301.
"Entitlement holder," section 336.8-102.
"Financial asset," section 336.8-102.
"Holder in due course," section 336.3-302.
"Note," section 336.3-104.
"Sale," section 336.2-106.
"Securities intermediary," section 336.8-102.
"Security," section 336.8-102.
"Security certificate," section 336.8-102.
"Security entitlement," section 336.8-102.
"Uncertificated security," section 336.8-102.
(4) In addition article 1 contains general definitions and
principles of construction and interpretation applicable
throughout this article.
Sec. 3. Minnesota Statutes 1994, section 336.9-106, is
amended to read:
336.9-106 [DEFINITIONS: "ACCOUNT"; "GENERAL INTANGIBLES".]
"Account" means any right to payment for goods sold or
leased or for services rendered which is not evidenced by an
instrument or chattel paper whether or not it has been earned by
performance. "General intangibles" means any personal property
(including things in action) other than goods, accounts, chattel
paper, documents, instruments, investment property, and money.
All rights earned or unearned under a charter or other contract
involving the use or hire of a vessel and all rights incident to
the charter or contract are accounts.
Sec. 4. [336.9-115] [INVESTMENT PROPERTY.]
In this article:
(a) "Commodity account" means an account maintained by a
commodity intermediary in which a commodity contract is carried
for a commodity customer.
(b) "Commodity contract" means a commodity futures
contract, an option on a commodity futures contract, a commodity
option, or other contract that, in each case, is:
(i) 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 the federal commodities laws; or
(ii) 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.
(c) "Commodity customer" means a person for whom a
commodity intermediary carries a commodity contract on its books.
(d) "Commodity intermediary" means:
(i) a person who is registered as a futures commission
merchant under the federal commodities laws; or
(ii) a person who 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 the
federal commodities laws.
(e) "Control" with respect to a certificated security,
uncertificated security, or security entitlement has the meaning
specified in section 336.8-106. A secured party has control
over a commodity contract if, by agreement among the commodity
customer, the commodity intermediary, and the secured party, the
commodity intermediary has agreed that it will apply any value
distributed on account of the commodity contract as directed by
the secured party without further consent by the commodity
customer. If a commodity customer grants a security interest in
a commodity contract to its own commodity intermediary, the
commodity intermediary as secured party has control. A secured
party has control over a securities account or commodity account
if the secured party has control over all security entitlements
or commodity contracts carried in the securities account or
commodity account.
(f) "Investment property" means:
(i) a security, whether certificated or uncertificated;
(ii) a security entitlement;
(iii) a securities account;
(iv) a commodity contract; or
(v) a commodity account.
(2) Attachment or perfection of a security interest in a
securities account is also attachment or perfection of a
security interest in all security entitlements carried in the
securities account. Attachment or perfection of a security
interest in a commodity account is also attachment or perfection
of a security interest in all commodity contracts carried in the
commodity account.
(3) A description of collateral in a security agreement or
financing statement is sufficient to create or perfect a
security interest in a certificated security, uncertificated
security, security entitlement, securities account, commodity
contract, or commodity account whether it describes the
collateral by those terms, or as investment property, or by
description of the underlying security, financial asset, or
commodity contract. A description of investment property
collateral in a security agreement or financing statement is
sufficient if it identifies the collateral by specific listing,
by category, by quantity, by a computational or allocational
formula or procedure, or by any other method, if the identity of
the collateral is objectively determinable.
(4) Perfection of a security interest in investment
property is governed by the following rules:
(a) A security interest in investment property may be
perfected by control.
(b) Except as otherwise provided in paragraphs (c) and (d),
a security interest in investment property may be perfected by
filing.
(c) If the debtor is a broker or securities intermediary, a
security interest in investment property is perfected when it
attaches. The filing of a financing statement with respect to a
security interest in investment property granted by a broker or
securities intermediary has no effect for purposes of perfection
or priority with respect to that security interest.
(d) If a debtor is a commodity intermediary, a security
interest in a commodity contract or a commodity account is
perfected when it attaches. The filing of a financing statement
with respect to a security interest in a commodity contract or a
commodity account granted by a commodity intermediary has no
effect for purposes of perfection or priority with respect to
that security interest.
(5) Priority between conflicting security interests in the
same investment property is governed by the following rules:
(a) A security interest of a secured party who has control
over investment property has priority over a security interest
of a secured party who does not have control over the investment
property.
(b) Except as otherwise provided in paragraphs (c) and (d),
conflicting security interests of secured parties each of whom
has control rank equally.
(c) Except as otherwise agreed by the securities
intermediary, a security interest in a security entitlement or a
securities account granted to the debtor's own securities
intermediary has priority over any security interest granted by
the debtor to another secured party.
(d) Except as otherwise agreed by the commodity
intermediary, a security interest in a commodity contract or a
commodity account granted to the debtor's own commodity
intermediary has priority over any security interest granted by
the debtor to another secured party.
(e) Conflicting security interests granted by a broker, a
securities intermediary, or a commodity intermediary which are
perfected without control rank equally.
(f) In all other cases, priority between conflicting
security interests in investment property is governed by section
336.9-312(5), (6), and (7). Section 336.9-312(4) does not apply
to investment property.
(6) If a security certificate in registered form is
delivered to a secured party pursuant to agreement, a written
security agreement is not required for attachment or
enforceability of the security interest, delivery suffices for
perfection of the security interest, and the security interest
has priority over a conflicting security interest perfected by
means other than control, even if a necessary endorsement is
lacking.
Sec. 5. [336.9-116] [SECURITY INTEREST ARISING IN PURCHASE
OR DELIVERY OF FINANCIAL ASSET.]
(1) If a person buys a financial asset through a securities
intermediary in a transaction in which the buyer is obligated to
pay the purchase price to the securities intermediary at the
time of the purchase, and the securities intermediary credits
the financial asset to the buyer's securities account before the
buyer pays the securities intermediary, the securities
intermediary has a security interest in the buyer's security
entitlement securing the buyer's obligation to pay. A security
agreement is not required for attachment or enforceability of
the security interest, and the security interest is
automatically perfected.
(2) If a certificated security, or other financial asset
represented by a writing which in the ordinary course of
business is transferred by delivery with any necessary
endorsement or assignment is delivered pursuant to an agreement
between persons in the business of dealing with such securities
or financial assets and the agreement calls for delivery versus
payment, the person delivering the certificate or other
financial asset has a security interest in the certificated
security or other financial asset securing the seller's right to
receive payment. A security agreement is not required for
attachment or enforceability of the security interest, and the
security interest is automatically perfected.
Sec. 6. Minnesota Statutes 1994, section 336.9-203, is
amended to read:
336.9-203 [ATTACHMENT AND ENFORCEABILITY OF SECURITY
INTEREST; PROCEEDS; FORMAL REQUISITES.]
(1) Subject to the provisions of section 336.4-210 on the
security interest of a collecting bank, section 336.8-321
sections 336.9-115 and 336.9-116 on security interests
in securities investment property and section 336.9-113 on a
security interest arising under the article on sales, a security
interest is not enforceable against the debtor or third parties
with respect to the collateral and does not attach unless:
(a) the collateral is in the possession of the secured
party pursuant to agreement, the collateral is investment
property and the secured party has control pursuant to
agreement, or the debtor has signed a security agreement which
contains a description of the collateral and, in addition, when
the security interest covers crops growing or to be grown or
timber to be cut, a description of the land concerned;
(b) value has been given; and
(c) the debtor has rights in the collateral.
(2) A security interest attaches when it becomes
enforceable against the debtor with respect to the collateral.
Attachment occurs as soon as all of the events specified in
subsection (1) have taken place unless explicit agreement
postpones the time of attaching.
(3) Unless otherwise agreed a security agreement gives the
secured party the rights to proceeds provided by section
336.9-306.
(4) A transaction, although subject to this article, is
also subject to Minnesota Statutes, Sections 48.153 to 48.157;
Chapters 52, 53, and 56; and Sections 168.66 to 168.77, 222.13
to 222.16, and 334.01 to 334.06, and in the case of conflict
between the provisions of this article and any such statute, the
provisions of such statute control. Failure to comply with any
applicable statute has only the effect which is specified
therein.
Sec. 7. Minnesota Statutes 1994, section 336.9-301, is
amended to read:
336.9-301 [PERSONS WHO TAKE PRIORITY OVER UNPERFECTED
SECURITY INTERESTS; RIGHT OF "LIEN CREDITOR."]
(1) Except as otherwise provided in subsection (2), an
unperfected security interest is subordinate to the rights of
(a) persons entitled to priority under section 336.9-312;
(b) a person who becomes a lien creditor before the
security interest is perfected;
(c) in the case of goods, instruments, documents, and
chattel paper, a person who is not a secured party and who is a
transferee in bulk or other buyer not in ordinary course of
business, or is a buyer of farm products in the ordinary course
of business, to the extent that the person gives value and
receives delivery of the collateral without knowledge of the
security interest and before it is perfected;
(d) in the case of accounts and, general intangibles, and
investment property, a person who is not a secured party and who
is a transferee to the extent that the person gives value
without knowledge of the security interest and before it is
perfected.
(2) If the secured party files with respect to a purchase
money security interest before or within 20 days after the
debtor receives possession of the collateral, the secured party
takes priority over the rights of a transferee in bulk or of a
lien creditor which arise between the time the security interest
attaches and the time of filing.
(3) A "lien creditor" means a creditor who has acquired a
lien on the property involved by attachment, levy or the like
and includes an assignee for benefit of creditors from the time
of assignment, and a trustee in bankruptcy from the date of the
filing of the petition or a receiver in equity from the time of
appointment.
(4) A person who becomes a lien creditor while a security
interest is perfected takes subject to the security interest
only to the extent that it secures advances made before the
person becomes a lien creditor or within 45 days thereafter or
made without knowledge of the lien or pursuant to a commitment
entered into without knowledge of the lien.
Sec. 8. Minnesota Statutes 1994, section 336.9-302, is
amended to read:
336.9-302 [WHEN FILING IS REQUIRED TO PERFECT SECURITY
INTEREST; SECURITY INTERESTS TO WHICH FILING PROVISIONS OF THIS
ARTICLE DO NOT APPLY.]
(1) A financing statement must be filed to perfect all
security interest except the following:
(a) A security interest in collateral in possession of the
secured party under section 336.9-305;
(b) A security interest temporarily perfected in
instruments, certificated securities, or documents without
delivery under section 336.9-304 or in proceeds for a 20 day
period under section 336.9-306;
(c) A security interest created by an assignment of a
beneficial interest in a trust or a decedent's estate;
(d) A purchase money security interest in consumer goods;
but filing is required for a motor vehicle required to be
registered; and fixture filing is required for priority over
conflicting interests in fixtures to the extent provided in
section 336.9-313;
(e) An assignment of accounts which does not alone or in
conjunction with other assignments to the same assignee transfer
a significant part of the outstanding accounts of the assignor;
(f) A security interest of a collecting bank (section
336.4-210) or in securities (section 336.8-321) or arising under
the article on sales (see section 336.9-113) or covered in
subsection (3) of this section;
(g) An assignment for the benefit of all the creditors of
the transferor, and subsequent transfers by the assignee
thereunder;
(h) A security interest in investment property which is
perfected without filing under section 336.9-115 or 336.9-116.
(2) If a secured party assigns a perfected security
interest, no filing under this article is required in order to
continue the perfected status of the security interest against
creditors of and transferees from the original debtor.
(3) The filing of a financing statement otherwise required
by this article is not necessary or effective to perfect a
security interest in property subject to the following statutes
or treaties; except that to the extent such statutes or treaties
are silent on a specific matter, the provisions of this article
shall govern:
(a) a statute or treaty of the United States which provides
for a national or international registration or a national or
international certificate of title or which specifies a place of
filing different from that specified in this article for filing
of the security interest; or
(b) the following statutes of this state;
(i) Sections 168A.01 to 168A.31 and 86B.820 to 86B.920; but
during any period in which collateral is inventory held for sale
by a person who is in the business of selling goods of that
kind, the filing provisions of this article (part 4) apply to a
security interest in that collateral created by the person as a
debtor; or
(ii) Sections 300.11 to 300.115.
(c) a certificate of title statute of another jurisdiction
under the law of which indication of a security interest on the
certificate is required as a condition of perfection (subsection
(2) of section 336.9-103).
(4) Compliance with a statute or treaty described in
subsection (3) is equivalent to the filing of a financing
statement under this article, and a security interest in
property subject to the statute or treaty can be perfected only
by compliance therewith except as provided in section 336.9-103
on multiple state transactions. A security interest perfected
by compliance with such a statute or treaty is governed by this
article in all respects not inconsistent with the provisions of
the statute or treaty under which it was perfected, provided
that this article shall not be deemed inconsistent if it
provides for a more extensive duration of effectiveness.
Sec. 9. Minnesota Statutes 1994, section 336.9-304, is
amended to read:
336.9-304 [PERFECTION OF SECURITY INTEREST IN INSTRUMENTS,
DOCUMENTS, AND GOODS COVERED BY DOCUMENTS; PERFECTION BY
PERMISSIVE FILING; TEMPORARY PERFECTION WITHOUT FILING OR
TRANSFER OF POSSESSION.]
(1) A security interest in chattel paper or negotiable
documents may be perfected by filing. A security interest in
money or instruments (other than certificated securities or
instruments which constitute part of chattel paper) can be
perfected only by the secured party's taking possession, except
as provided in subsections (4) and (5) of this section and
subsections (2) and (3) of section 336.9-306 on proceeds.
(2) During the period that goods are in the possession of
the issuer of a negotiable document therefor, a security
interest in the goods is perfected by perfecting a security
interest in the document, and any security interest in the goods
otherwise perfected during such period is subject thereto.
(3) A security interest in goods in the possession of a
bailee other than one who has issued a negotiable document
therefor is perfected by issuance of a document in the name of
the secured party or by the bailee's receipt of notification of
the secured party's interest or by filing as to the goods.
(4) A security interest in instruments (other than
certificated securities), certificated securities, or negotiable
documents is perfected without filing or the taking of
possession for a period of 21 days from the time it attaches to
the extent that it arises for new value given under a written
security agreement.
(5) A security interest remains perfected for a period of
21 days without filing where a secured party having a perfected
security interest in an instrument (other than a certificated
security), a certificated security, a negotiable document, or
goods in possession of a bailee other than one who has issued a
negotiable document therefor:
(a) makes available to the debtor the goods or documents
representing the goods for the purpose of ultimate sale or
exchange or for the purpose of loading, unloading, storing,
shipping, transshipping, manufacturing, processing or otherwise
dealing with them in a manner preliminary to their sale or
exchange but priority between conflicting security interests in
the goods is subject to subsection (3) of section 336.9-312; or
(b) delivers the instrument or certificated security to the
debtor for the purpose of ultimate sale or exchange or of
presentation, collection, renewal, or registration of transfer.
(6) After the 21 day period in subsections (4) and (5)
perfection depends upon compliance with applicable provisions of
this article.
Sec. 10. Minnesota Statutes 1994, section 336.9-305, is
amended to read:
336.9-305 [WHEN POSSESSION BY SECURED PARTY PERFECTS
SECURITY INTEREST WITHOUT FILING.]
A security interest in letters of credit and advices of
credit (subsection (2) (a) of section 336.5-116), goods,
instruments (other than certificated securities), money,
negotiable documents, or chattel paper may be perfected by the
secured party's taking possession of the collateral. If such
collateral other than goods covered by a negotiable document is
held by a bailee, the secured party is deemed to have possession
from the time the bailee receives notification of the secured
party's interest. A security interest is perfected by
possession from the time possession is taken without relation
back and continues only so long as possession is retained,
unless otherwise specified in this article. The security
interest may be otherwise perfected as provided in this article
before or after the period of possession by the secured party.
Sec. 11. Minnesota Statutes 1994, section 336.9-306, is
amended to read:
336.9-306 ["PROCEEDS"; SECURED PARTY'S RIGHTS ON
DISPOSITION OF COLLATERAL.]
(1) "Proceeds" includes whatever is received upon the sale,
exchange, collection or other disposition of collateral or
proceeds. Insurance payable by reason of loss or damage to the
collateral is proceeds, except to the extent that it is payable
to a person other than a party to the security agreement. Any
payments or distributions made with respect to investment
property collateral are proceeds. Money, checks, deposit
accounts, and the like, are "cash proceeds." All other proceeds
are "noncash proceeds."
(2) Except where this article otherwise provides, a
security interest continues in collateral notwithstanding sale,
exchange or other disposition thereof unless the disposition was
authorized by the secured party in the security agreement or
otherwise, and also continues in any identifiable proceeds
including collections received by the debtor.
(3) The security interest in proceeds is a continuously
perfected security interest if the interest in the original
collateral was perfected but it ceases to be a perfected
security interest and becomes unperfected 20 days after receipt
of the proceeds by the debtor unless
(a) a filed financing statement covers the original
collateral and the proceeds are collateral in which a security
interest may be perfected by filing in the office or offices
where the financing statement has been filed and, if the
proceeds are acquired with cash proceeds, the description of
collateral in the financing statement indicates the types of
property constituting the proceeds; or
(b) a filed financing statement covers the original
collateral and the proceeds are identifiable cash proceeds; or
(c) the original collateral was investment property and the
proceeds are identifiable cash proceeds; or
(d) the security interest in the proceeds is perfected
before the expiration of the 20 day period.
Except as provided in this section, a security interest in
proceeds can be perfected only by the methods or under the
circumstances permitted in this article for original collateral
of the same type.
(4) In the event of insolvency proceedings instituted by or
against a debtor, a secured party with a perfected security
interest in proceeds has a perfected security interest only in
the following proceeds:
(a) in identifiable noncash proceeds and in separate
deposit accounts containing only proceeds;
(b) in identifiable cash proceeds in the form of money
which is neither commingled with other money nor deposited in a
deposit account prior to the insolvency proceedings;
(c) in identifiable cash proceeds in the form of checks and
the like which are not deposited in a deposit account prior to
the insolvency proceedings; and
(d) in all cash and deposit accounts of the debtor, in
which proceeds have been commingled with other funds, but the
perfected security interest under this paragraph (d) is
(i) subject to any right of setoff; and
(ii) limited to an amount not greater than the amount of
any cash proceeds received by the debtor within 20 days before
the institution of the insolvency proceedings less the sum of
(I) the payments to the secured party on account of cash
proceeds received by the debtor during such period and (II) the
cash proceeds received by the debtor during such period to which
the secured party is entitled under paragraphs (a) to (c) of
this subsection (4).
(5) If a sale of goods results in an account or chattel
paper which is transferred by the seller to a secured party, and
if the goods are returned to or are repossessed by the seller or
the secured party, the following rules determine priorities:
(a) If the goods were collateral at the time of sale for an
indebtedness of the seller which is still unpaid, the original
security interest attaches again to the goods and continues as a
perfected security interest if it was perfected at the time when
the goods were sold. If the security interest was originally
perfected by a filing which is still effective, nothing further
is required to continue the perfected status; in any other case,
the secured party must take possession of the returned or
repossessed goods or must file.
(b) An unpaid transferee of the chattel paper has a
security interest in the goods against the transferor. Such
security interest is prior to a security interest asserted under
paragraph (a) to the extent that the transferee of the chattel
paper was entitled to priority under section 336.9-308.
(c) An unpaid transferee of the account has a security
interest in the goods against the transferor. Such security
interest is subordinate to a security interest asserted under
paragraph (a).
(d) A security interest of an unpaid transferee asserted
under paragraph (b) or (c) must be perfected for protection
against creditors of the transferor and purchasers of the
returned or repossessed goods.
Sec. 12. Minnesota Statutes 1994, section 336.9-309, is
amended to read:
336.9-309 [PROTECTION OF PURCHASERS OF INSTRUMENTS,
DOCUMENTS, AND SECURITIES.]
Nothing in this article limits the rights of a holder in
due course of a negotiable instrument (section 336.3-302) or a
holder to whom a negotiable document of title has been duly
negotiated (section 336.7-501) or a bona fide protected
purchaser of a security (section 336.8-302 336.8-303) and the
holders or purchasers take priority over an earlier security
interest even though perfected. Filing under this article does
not constitute notice of the security interest to the holders or
purchasers.
Sec. 13. Minnesota Statutes 1994, section 336.9-312, is
amended to read:
336.9-312 [PRIORITIES AMONG CONFLICTING SECURITY INTERESTS
IN THE SAME COLLATERAL.]
(1) The rules of priority stated in other sections of this
part and in the following sections shall govern when
applicable: section 336.4-210 with respect to the security
interests of collecting banks in items being collected,
accompanying documents and proceeds; section 336.9-103 on
security interests related to other jurisdictions; section
336.9-114 on consignments; section 336.9-115 on security
interests in investment property.
(2) A perfected security interest in crops for new value
given to enable the debtor to produce the crops during the
production season and given not more than three months before
the crops become growing crops by planting or otherwise takes
priority over an earlier perfected security interest to the
extent that such earlier interest secures obligations due more
than six months before the crops become growing crops by
planting or otherwise, even though the person giving new value
had knowledge of the earlier security interest.
(3) A perfected purchase money security interest in
inventory has priority over a conflicting security interest in
the same inventory and also has priority in identifiable cash
proceeds received on or before the delivery of the inventory to
a buyer if
(a) the purchase money security interest is perfected at
the time the debtor receives possession of the inventory; and
(b) the purchase money secured party gives notification in
writing to the holder of the conflicting security interest if
the holder had filed a financing statement covering the same
types of inventory (i) before the date of the filing made by the
purchase money secured party, or (ii) before the beginning of
the 21 day period where the purchase money security interest is
temporarily perfected without filing or possession (subsection
(5) of section 336.9-304); and
(c) the holder of the conflicting security interest
receives the notification within five years before the debtor
receives possession of the inventory; and
(d) the notification states that the person giving the
notice has or expects to acquire a purchase money security
interest in inventory of the debtor, describing such inventory
by item or type.
(4) A purchase money security interest in collateral other
than inventory has priority over a conflicting security interest
in the same collateral or its proceeds if the purchase money
security interest is perfected at the time the debtor receives
possession of the collateral or within 20 days thereafter.
(5) In all cases not governed by other rules stated in this
section (including cases of purchase money security interests
which do not qualify for the special priorities set forth in
subsections (3) and (4) of this section), priority between
conflicting security interests in the same collateral shall be
determined according to the following rules:
(a) Conflicting security interests rank according to
priority in time of filing or perfection. Priority dates from
the time a filing is first made covering the collateral or the
time the security interest is first perfected, whichever is
earlier, provided that there is no period thereafter when there
is neither filing nor perfection.
(b) so long as conflicting security interests are
unperfected, the first to attach has priority.
(6) For the purposes of subsection (5) a date of filing or
perfection as to collateral is also a date of filing or
perfection as to proceeds.
(7) If future advances are made while a security interest
is perfected by filing, the taking of possession, or under
section 336.8-321 on securities 336.9-115 or 336.9-116 on
investment property, the security interest has the same priority
for the purposes of subsection (5) with respect to the future
advances as it does with respect to the first advance. If a
commitment is made before or while the security interest is so
perfected, the security interest has the same priority with
respect to advances made pursuant thereto. In other cases a
perfected security interest has priority from the date the
advance is made.
ARTICLE 3
Conforming Amendments to Articles 1, 4, 5, and 10
Section 1. Minnesota Statutes 1994, section 336.1-105, is
amended to read:
336.1-105 [TERRITORIAL APPLICATION OF THE CHAPTER; PARTIES'
POWER TO CHOOSE APPLICABLE LAW.]
(1) Except as provided hereafter in this section, when a
transaction bears a reasonable relation to this state and also
to another state or nation the parties may agree that the law
either of this state or of such other state or nation shall
govern their rights and duties. Failing such agreement this
chapter applies to transactions bearing an appropriate relation
to this state.
(2) Where one of the following provisions of this chapter
specifies the applicable law, that provision governs and a
contrary agreement is effective only to the extent permitted by
the law (including the conflict of laws rules) so specified:
Rights of creditors against sold goods. Section 336.2-402.
Applicability of the article on leases. Sections
336.2A-105 and 336.2A-106.
Applicability of the article on bank deposits and
collections. Section 336.4-102.
Governing law in the article on funds transfers. Section
336.4A-507.
Applicability of the article on investment securities.
Section 336.8-106 336.8-110.
Perfection provisions of the article on secured
transactions. Section 336.9-103.
Sec. 2. Minnesota Statutes 1994, section 336.1-206, is
amended to read:
336.1-206 [STATUTE OF FRAUDS FOR KINDS OF PERSONAL PROPERTY
NOT OTHERWISE COVERED.]
(1) Except in the cases described in subsection (2) of this
section a contract for the sale of personal property is not
enforceable by way of action or defense beyond $5,000 in amount
or value of remedy unless there is some writing which indicates
that a contract for sale has been made between the parties at a
defined or stated price, reasonably identifies the subject
matter, and is signed by the party against whom enforcement is
sought or by that party's authorized agent.
(2) Subsection (1) of this section does not apply to
contracts for the sale of goods (section 336.2-201) nor of
securities (section 336.8-319 336.8-113) nor to security
agreements (section 336.9-203).
Sec. 3. Minnesota Statutes 1994, section 336.4-104, is
amended to read:
336.4-104 [DEFINITIONS AND INDEX OF DEFINITIONS.]
(a) In this article, unless the context otherwise requires:
(1) "Account" means any deposit or credit account with a
bank, including a demand, time, savings, passbook, share draft,
or like account, other than an account evidenced by a
certificate of deposit;
(2) "Afternoon" means the period of a day between noon and
midnight;
(3) "Banking day" means that part of any day, excluding
Saturday, Sunday, and holidays, on which a bank is open to the
public for carrying on substantially all of its banking
functions;
(4) "Clearinghouse" means an association of banks or other
payors regularly clearing items;
(5) "Customer" means a person having an account with a bank
or for whom a bank has agreed to collect items, including a bank
that maintains an account at another bank;
(6) "Documentary draft" means a draft to be presented for
acceptance or payment if specified documents, certificated
securities (section 336.8-102) or instructions for
uncertificated securities (section 336.8-308 336.8-102), or
other certificates, statements, or the like are to be received
by the drawee or other payor before acceptance or payment of the
draft;
(7) "Draft" means a draft as defined in section 336.3-104
or an item, other than an instrument, that is an order;
(8) "Drawee" means a person ordered in a draft to make
payment;
(9) "Item" means an instrument or a promise or order to pay
money handled by a bank for collection or payment. The term
does not include a payment order governed by article 4A or a
credit or debit card slip;
(10) "Midnight deadline" with respect to a bank is midnight
on its next banking day following the banking day on which it
receives the relevant item or notice or from which the time for
taking action commences to run, whichever is later;
(11) "Settle" means to pay in cash, by clearinghouse
settlement, in a charge or credit or by remittance, or otherwise
as agreed. A settlement may be either provisional or final;
(12) "Suspends payments" with respect to a bank means that
it has been closed by order of the supervisory authorities, that
a public officer has been appointed to take it over, or that it
ceases or refuses to make payments in the ordinary course of
business.
(b) Other definitions applying to this article and the
sections in which they appear are:
"Agreement for electronic presentment," section 336.4-110
"Bank," section 336.4-105
"Collecting bank," section 336.4-105
"Depositary bank," section 336.4-105
"Intermediary bank," section 336.4-105
"Payor bank," section 336.4-105
"Presenting bank," section 336.4-105
"Presentment notice," section 336.4-110
(c) The following definitions in other articles apply to
this article:
"Acceptance," section 336.3-409
"Alteration," section 336.3-407
"Cashier's check," section 336.3-104
"Certificate of deposit," section 336.3-104
"Certified check," section 336.3-409
"Check," section 336.3-104
"Good faith," section 336.3-103
"Holder in due course," section 336.3-302
"Instrument," section 336.3-104
"Notice of dishonor," section 336.3-503
"Order," section 336.3-103
"Ordinary care," section 336.3-103
"Person entitled to enforce," section 336.3-301
"Presentment," section 336.3-501
"Promise," section 336.3-103
"Prove," section 336.3-103
"Teller's check," section 336.3-104
"Unauthorized signature," section 336.3-403
(d) In addition, article 1 contains general definitions and
principles of construction and interpretation applicable
throughout this article.
Sec. 4. Minnesota Statutes 1994, section 336.5-114, is
amended to read:
336.5-114 [ISSUER'S DUTY AND PRIVILEGE TO HONOR; RIGHT TO
REIMBURSEMENT.]
(1) An issuer must honor a draft or demand for payment
which complies with the terms of the relevant credit regardless
of whether the goods or documents conform to the underlying
contract for sale or other contract between the customer and the
beneficiary. The issuer is not excused from honor of such a
draft or demand by reason of an additional general term that all
documents must be satisfactory to the issuer, but an issuer may
require that specified documents must be satisfactory to it.
(2) Unless otherwise agreed when documents appear on their
face to comply with the terms of a credit but a required
document does not in fact conform to the warranties made on
negotiation or transfer of a document of title (section
336.7-507) or of a certificated security (section 336.8-306
336.8-108) or is forged or fraudulent or there is fraud in the
transaction:
(a) the issuer must honor the draft on demand for payment
if honor is demanded by a negotiating bank or other holder of
the draft or demand which has taken the draft or demand under
the credit and under circumstances which would make it a holder
in due course (section 336.3-302) and in an appropriate case
would make it a person to whom a document of title has been duly
negotiated (section 336.7-502) or a bona fide purchaser of a
certificated security (section 336.8-302); and
(b) in all other cases as against its customer, an issuer
acting in good faith may honor the draft or demand for payment
despite notification from the customer of fraud, forgery or
other defect not apparent on the face of the documents but a
court of appropriate jurisdiction may enjoin such honor.
(3) Unless otherwise agreed an issuer which has duly
honored a draft or demand for payment is entitled to immediate
reimbursement of any payment made under the credit and to be put
in effectively available funds not later than the day before
maturity of any acceptance made under the credit.
(4) When a credit provides for payment by the issuer on
receipt of notice that the required documents are in the
possession of a correspondent or other agent of the issuer
(a) any payment made on receipt of such notice is
conditional; and
(b) the issuer may reject documents which do not comply
with the credit if it does so within three banking days
following its receipt of the documents; and
(c) in the event of such rejection, the issuer is entitled
by chargeback or otherwise to return of the payment made.
(5) In the case covered by subsection (4) failure to reject
documents within the time specified in subparagraph (b)
constitutes acceptance of the documents and makes the payment
final in favor of the beneficiary.
Sec. 5. Minnesota Statutes 1994, section 336.10-104, is
amended to read:
336.10-104 [LAWS NOT REPEALED.]
(1) The article on documents of title (article 7) does not
repeal or modify any laws prescribing the form or contents of
documents of title or the services or facilities to be afforded
by bailees, or otherwise regulating bailees' businesses in
respects not specifically dealt with herein; but the fact that
such laws are violated does not affect the status of a document
of title which otherwise complies with the definition of a
document of title (section 336.1-201).
(2) This chapter does not repeal Minnesota Statutes 1961,
Sections 520.21 to 520.31, cited as the uniform act for the
simplification of fiduciary security transfers, and if in any
respect there is any inconsistency between that act and the
article of this chapter on investment securities (article 8) the
provisions of the former act shall control.
Presented to the governor May 19, 1995
Signed by the governor May 22, 1995, 7:33 p.m.
Official Publication of the State of Minnesota
Revisor of Statutes