Office of the Revisor of Statutes
Minnesota Session Laws - 1997, Regular Session
Key: (1) language to be deleted (2) new language
CHAPTER 11-H.F.No. 441
An act relating to commerce; enacting the revised
article 5 of the Uniform Commercial Code; regulating
letters of credit; making conforming changes; amending
Minnesota Statutes 1996, sections 336.1-105;
336.2-512; 336.9-103; 336.9-104; 336.9-105; 336.9-106;
336.9-304; and 336.9-305; proposing coding for new law
in Minnesota Statutes, chapter 336; repealing
Minnesota Statutes 1996, sections 336.5-101;
336.5-102; 336.5-103; 336.5-104; 336.5-105; 336.5-106;
336.5-107; 336.5-108; 336.5-109; 336.5-110; 336.5-111;
336.5-112; 336.5-113; 336.5-114; 336.5-115; 336.5-116;
and 336.5-117.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
ARTICLE 1
UNIFORM COMMERCIAL CODE
Revised Article 5
LETTERS OF CREDIT
Section 1. [336.5-101] [SHORT TITLE.]
This article may be cited as Uniform Commercial
Code-Letters of Credit.
Sec. 2. [336.5-102] [DEFINITIONS.]
(a) In this article:
(1) "Adviser" means a person who, at the request of the
issuer, a confirmer, or another adviser, notifies or requests
another adviser to notify the beneficiary that a letter of
credit has been issued, confirmed, or amended.
(2) "Applicant" means a person at whose request or for
whose account a letter of credit is issued. The term includes a
person who requests an issuer to issue a letter of credit on
behalf of another if the person making the request undertakes an
obligation to reimburse the issuer.
(3) "Beneficiary" means a person who under the terms of a
letter of credit is entitled to have its complying presentation
honored. The term includes a person to whom drawing rights have
been transferred under a transferable letter of credit.
(4) "Confirmer" means a nominated person who undertakes, at
the request or with the consent of the issuer, to honor a
presentation under a letter of credit issued by another.
(5) "Dishonor" of a letter of credit means failure timely
to honor or to take an interim action, such as acceptance of a
draft, that may be required by the letter of credit.
(6) "Document" means a draft or other demand, document of
title, investment security, certificate, invoice, or other
record, statement, or representation of fact, law, right, or
opinion (i) which is presented in a written or other medium
permitted by the letter of credit or, unless prohibited by the
letter of credit, by the standard practice referred to in
section 336.5-108, paragraph (e) and (ii) which is capable of
being examined for compliance with the terms and conditions of
the letter of credit. A document may not be oral.
(7) "Good faith" means honesty in fact in the conduct or
transaction concerned.
(8) "Honor" of a letter of credit means performance of the
issuer's undertaking in the letter of credit to pay or deliver
an item of value. Unless the letter of credit otherwise
provides, "honor" occurs
(i) upon payment,
(ii) if the letter of credit provides for acceptance, upon
acceptance of a draft and, at maturity, its payment, or
(iii) if the letter of credit provides for incurring a
deferred obligation, upon incurring the obligation and, at
maturity, its performance.
(9) "Issuer" means a bank or other person that issues a
letter of credit, but does not include an individual who makes
an engagement for personal, family, or household purposes.
(10) "Letter of credit" means a definite undertaking that
satisfies the requirements of section 336.5-104 by an issuer to
a beneficiary at the request or for the account of an applicant
or, in the case of a financial institution, to itself or for its
own account, to honor a documentary presentation by payment or
delivery of an item of value.
(11) "Nominated person" means a person whom the issuer (i)
designates or authorizes to pay, accept, negotiate, or otherwise
give value under a letter of credit and (ii) undertakes by
agreement or custom and practice to reimburse.
(12) "Presentation" means delivery of a document to an
issuer or nominated person for honor or giving of value under a
letter of credit.
(13) "Presenter" means a person making a presentation as or
on behalf of a beneficiary or nominated person.
(14) "Record" means information that is inscribed on a
tangible medium, or that is stored in an electronic or other
medium and is retrievable in perceivable form.
(15) "Successor of a beneficiary" means a person who
succeeds to substantially all of the rights of a beneficiary by
operation of law, including a corporation with or into which the
beneficiary has been merged or consolidated, an administrator,
executor, personal representative, trustee in bankruptcy, debtor
in possession, liquidator, and receiver.
(b) Definitions in other articles applying to this article
and the sections in which they appear are:
"Accept" or "Acceptance" Section 336.3-409
"Value" Sections 336.3-303, 336.4-211
(c) Article 1 contains certain additional general
definitions and principles of construction and interpretation
applicable throughout this article.
Sec. 3. [336.5-103] [SCOPE.]
(a) This article applies to letters of credit and to
certain rights and obligations arising out of transactions
involving letters of credit.
(b) The statement of a rule in this article does not by
itself require, imply, or negate application of the same or a
different rule to a situation not provided for, or to a person
not specified, in this article.
(c) With the exception of this subsection, subsections (a)
and (d), sections 336.5-102(a)(9) and (10), 336.5-106(d), and
336.5-114(d), and except to the extent prohibited in sections
336.1-102(3) and 336.5-117(d), the effect of this article may be
varied by agreement or by a provision stated or incorporated by
reference in an undertaking. A term in an agreement or
undertaking generally excusing liability or generally limiting
remedies for failure to perform obligations is not sufficient to
vary obligations prescribed by this article.
(d) Rights and obligations of an issuer to a beneficiary or
a nominated person under a letter of credit are independent of
the existence, performance, or nonperformance of a contract or
arrangement out of which the letter of credit arises or which
underlies it, including contracts or arrangements between the
issuer and the applicant and between the applicant and the
beneficiary.
Sec. 4. [336.5-104] [FORMAL REQUIREMENTS.]
A letter of credit, confirmation, advice, transfer,
amendment, or cancellation may be issued in any form that is a
record and is authenticated (i) by a signature or (ii) in
accordance with the agreement of the parties or the standard
practice referred to in section 336.5-108(e).
Sec. 5. [336.5-105] [CONSIDERATION.]
Consideration is not required to issue, amend, transfer, or
cancel a letter of credit, advice, or confirmation.
Sec. 6. [336.5-106] [ISSUANCE, AMENDMENT, CANCELLATION,
AND DURATION.]
(a) A letter of credit is issued and becomes enforceable
according to its terms against the issuer when the issuer sends
or otherwise transmits it to the person requested to advise or
to the beneficiary. A letter of credit is revocable only if it
so provides.
(b) After a letter of credit is issued, rights and
obligations of a beneficiary, applicant, confirmer, and issuer
are not affected by an amendment or cancellation to which that
person has not consented except to the extent the letter of
credit provides that it is revocable or that the issuer may
amend or cancel the letter of credit without that consent.
(c) If there is no stated expiration date or other
provision that determines its duration, a letter of credit
expires one year after its stated date of issuance or, if none
is stated, after the date on which it is issued.
(d) A letter of credit that states that it is perpetual
expires five years after its stated date of issuance, or if none
is stated, after the date on which it is issued.
Sec. 7. [336.5-107] [CONFIRMER, NOMINATED PERSON, AND
ADVISER.]
(a) A confirmer is directly obligated on a letter of credit
and has the rights and obligations of an issuer to the extent of
its confirmation. The confirmer also has rights against and
obligations to the issuer as if the issuer were an applicant and
the confirmer had issued the letter of credit at the request and
for the account of the issuer.
(b) A nominated person who is not a confirmer is not
obligated to honor or otherwise give value for a presentation.
(c) A person requested to advise may decline to act as an
adviser. An adviser that is not a confirmer is not obligated to
honor or give value for a presentation. An adviser undertakes
to the issuer and to the beneficiary accurately to advise the
terms of the letter of credit, confirmation, amendment, or
advice received by that person and undertakes to the beneficiary
to check the apparent authenticity of the request to advise.
Even if the advice is inaccurate, the letter of credit,
confirmation, or amendment is enforceable as issued.
(d) A person who notifies a transferee beneficiary of the
terms of a letter of credit, confirmation, amendment, or advice
has the rights and obligations of an adviser under subsection
(c). The terms in the notice to the transferee beneficiary may
differ from the terms in any notice to the transferor
beneficiary to the extent permitted by the letter of credit,
confirmation, amendment, or advice received by the person who so
notifies.
Sec. 8. [336.5-108] [ISSUER'S RIGHTS AND OBLIGATIONS.]
(a) Except as otherwise provided in section 336.5-109, an
issuer shall honor a presentation that, as determined by the
standard practice referred to in subsection (e), appears on its
face strictly to comply with the terms and conditions of the
letter of credit. Except as otherwise provided in section
336.5-113 and unless otherwise agreed with the applicant, an
issuer shall dishonor a presentation that does not appear so to
comply.
(b) An issuer has a reasonable time after presentation, but
not beyond the end of the seventh business day of the issuer
after the day of its receipt of documents:
(1) to honor,
(2) if the letter of credit provides for honor to be
completed more than seven business days after presentation, to
accept a draft or incur a deferred obligation, or
(3) to give notice to the presenter of discrepancies in the
presentation.
(c) Except as otherwise provided in subsection (d), an
issuer is precluded from asserting as a basis for dishonor any
discrepancy if timely notice is not given, or any discrepancy
not stated in the notice if timely notice is given.
(d) Failure to give the notice specified in subsection (b)
or to mention fraud, forgery, or expiration in the notice does
not preclude the issuer from asserting as a basis for dishonor
fraud or forgery as described in section 336.5-109(a) or
expiration of the letter of credit before presentation.
(e) An issuer shall observe standard practice of financial
institutions that regularly issue letters of credit.
Determination of the issuer's observance of the standard
practice is a matter of interpretation for the court. The court
shall offer the parties a reasonable opportunity to present
evidence of the standard practice.
(f) An issuer is not responsible for:
(1) the performance or nonperformance of the underlying
contract, arrangement, or transaction,
(2) an act or omission of others, or
(3) observance or knowledge of the usage of a particular
trade other than the standard practice referred to in subsection
(e).
(g) If an undertaking constituting a letter of credit under
section 336.5-102(a)(10) contains nondocumentary conditions, an
issuer shall disregard the nondocumentary conditions and treat
them as if they were not stated.
(h) An issuer that has dishonored a presentation shall
return the documents or hold them at the disposal of, and send
advice to that effect to, the presenter.
(i) An issuer that has honored a presentation as permitted
or required by this article:
(1) is entitled to be reimbursed by the applicant in
immediately available funds not later than the date of its
payment of funds;
(2) takes the documents free of claims of the beneficiary
or presenter;
(3) is precluded from asserting a right of recourse on a
draft under sections 336.3-414 and 336.3-415;
(4) except as otherwise provided in sections 336.5-110 and
336.5-117, is precluded from restitution of money paid or other
value given by mistake to the extent the mistake concerns
discrepancies in the documents or tender which are apparent on
the face of the presentation; and
(5) is discharged to the extent of its performance under
the letter of credit unless the issuer honored a presentation in
which a required signature of a beneficiary was forged.
Sec. 9. [336.5-109] [FRAUD AND FORGERY.]
(a) If a presentation is made that appears on its face
strictly to comply with the terms and conditions of the letter
of credit, but a required document is forged or materially
fraudulent, or honor of the presentation would facilitate a
material fraud by the beneficiary on the issuer or applicant:
(1) the issuer shall honor the presentation, if honor is
demanded by (i) a nominated person who has given value in good
faith and without notice of forgery or material fraud, (ii) a
confirmer who has honored its confirmation in good faith, (iii)
a holder in due course of a draft drawn under the letter of
credit which was taken after acceptance by the issuer or
nominated person, or (iv) an assignee of the issuer's or
nominated person's deferred obligation that was taken for value
and without notice of forgery or material fraud after the
obligation was incurred by the issuer or nominated person; and
(2) the issuer, acting in good faith, may honor or dishonor
the presentation in any other case.
(b) If an applicant claims that a required document is
forged or materially fraudulent or that honor of the
presentation would facilitate a material fraud by the
beneficiary on the issuer or applicant, a court of competent
jurisdiction may temporarily or permanently enjoin the issuer
from honoring a presentation or grant similar relief against the
issuer or other persons only if the court finds that:
(1) the relief is not prohibited under the law applicable
to an accepted draft or deferred obligation incurred by the
issuer;
(2) a beneficiary, issuer, or nominated person who may be
adversely affected is adequately protected against loss that it
may suffer because the relief is granted;
(3) all of the conditions to entitle a person to the relief
under the law of this state have been met; and
(4) on the basis of the information submitted to the court,
the applicant is more likely than not to succeed under its claim
of forgery or material fraud and the person demanding honor does
not qualify for protection under subsection (a)(1).
Sec. 10. [336.5-110] [WARRANTIES.]
(a) If its presentation is honored, the beneficiary
warrants:
(1) to the issuer, any other person to whom presentation is
made, and the applicant that there is no fraud or forgery of the
kind described in section 336.5-109(a); and
(2) to the applicant that the drawing does not violate any
agreement between the applicant and beneficiary or any other
agreement intended by them to be augmented by the letter of
credit.
(b) The warranties in subsection (a) are in addition to the
warranties arising under articles 3, 4, 7, and 8 because of the
presentation or transfer of documents covered by any of those
articles.
Sec. 11. [336.5-111] [REMEDIES.]
(a) If an issuer wrongfully dishonors or repudiates its
obligation to pay money under a letter of credit before
presentation, the beneficiary, successor, or nominated person
presenting on its own behalf may recover from the issuer the
amount that is the subject of the dishonor or repudiation. If
the issuer's obligation under the letter of credit is not for
the payment of money, the claimant may obtain specific
performance or, at the claimant's selection, recover an amount
equal to the value of performance from the issuer. In either
case, the claimant may also recover incidental but not
consequential damages. The claimant is not obligated to take
action to avoid damages that might be due from the issuer under
this subsection. If, although not obligated to do so, the
claimant avoids damages, the claimant's recovery from the issuer
must be reduced by the amount of damages avoided. The issuer
has the burden of proving the amount of damages avoided. In the
case of repudiation the claimant need not present any document.
(b) If an issuer wrongfully dishonors a draft or demand
presented under a letter of credit or honors a draft or demand
in breach of its obligation to the applicant, the applicant may
recover damages resulting from the breach, including incidental
but not consequential damages, less any amount saved as a result
of the breach.
(c) If an adviser or nominated person other than a
confirmer breaches an obligation under this article or an issuer
breaches an obligation not covered in subsection (a) or (b), a
person to whom the obligation is owed may recover damages
resulting from the breach, including incidental but not
consequential damages, less any amount saved as a result of the
breach. To the extent of the confirmation, a confirmer has the
liability of an issuer specified in this subsection and
subsections (a) and (b).
(d) An issuer, nominated person, or adviser who is found
liable under subsection (a), (b), or (c) shall pay interest on
the amount owed thereunder from the date of wrongful dishonor
or other appropriate date.
(e) Reasonable attorney's fees and other expenses of
litigation must be awarded to the prevailing party in an action
in which a remedy is sought under this article.
(f) Damages that would otherwise be payable by a party for
breach of an obligation under this article may be liquidated by
agreement or undertaking, but only in an amount or by a formula
that is reasonable in light of the harm anticipated.
Sec. 12. [336.5-112] [TRANSFER OF LETTER OF CREDIT.]
(a) Except as otherwise provided in section 336.5-113,
unless a letter of credit provides that it is transferable, the
right of a beneficiary to draw or otherwise demand performance
under a letter of credit may not be transferred.
(b) Even if a letter of credit provides that it is
transferable, the issuer may refuse to recognize or carry out a
transfer if:
(1) the transfer would violate applicable law; or
(2) the transferor or transferee has failed to comply with
any requirement stated in the letter of credit or any other
requirement relating to transfer imposed by the issuer which is
within the standard practice referred to in section 336.5-108(e)
or is otherwise reasonable under the circumstances.
Sec. 13. [336.5-113] [TRANSFER BY OPERATION OF LAW.]
(a) A successor of a beneficiary may consent to amendments,
sign and present documents, and receive payment or other items
of value in the name of the beneficiary without disclosing its
status as a successor.
(b) A successor of a beneficiary may consent to amendments,
sign and present documents, and receive payment or other items
of value in its own name as the disclosed successor of the
beneficiary. Except as otherwise provided in subsection (e), an
issuer shall recognize a disclosed successor of a beneficiary as
beneficiary in full substitution for its predecessor upon
compliance with the requirements for recognition by the issuer
of a transfer of drawing rights by operation of law under the
standard practice referred to in section 336.5-108(e) or, in the
absence of such a practice, compliance with other reasonable
procedures sufficient to protect the issuer.
(c) An issuer is not obliged to determine whether a
purported successor is a successor of a beneficiary or whether
the signature of a purported successor is genuine or authorized.
(d) Honor of a purported successor's apparently complying
presentation under subsection (a) or (b) has the consequences
specified in section 336.5-108(i) even if the purported
successor is not the successor of a beneficiary. Documents
signed in the name of the beneficiary or of a disclosed
successor by a person who is neither the beneficiary nor the
successor of the beneficiary are forged documents for the
purposes of section 336.5-109.
(e) An issuer whose rights of reimbursement are not covered
by subsection (d) or substantially similar law and any confirmer
or nominated person may decline to recognize a presentation
under subsection (b).
(f) A beneficiary whose name is changed after the issuance
of a letter of credit has the same rights and obligations as a
successor of a beneficiary under this section.
Sec. 14. [336.5-114] [ASSIGNMENT OF PROCEEDS.]
(a) In this section, "proceeds of a letter of credit" means
the cash, check, accepted draft, or other item of value paid or
delivered upon honor or giving of value by the issuer or any
nominated person under the letter of credit. The term does not
include a beneficiary's drawing rights or documents presented by
the beneficiary.
(b) A beneficiary may assign its right to a part or all of
the proceeds of a letter of credit. The beneficiary may do so
before presentation as a present assignment of its right to
receive proceeds contingent upon its compliance with the terms
and conditions of the letter of credit.
(c) An issuer or nominated person need not recognize an
assignment of proceeds of a letter of credit until it consents
to the assignment.
(d) An issuer or nominated person has no obligation to give
or withhold its consent to an assignment of proceeds of a letter
of credit, but consent may not be unreasonably withheld if the
assignee possesses and exhibits the letter of credit and
presentation of the letter of credit is a condition to honor.
(e) Rights of a transferee beneficiary or nominated person
are independent of the beneficiary's assignment of the proceeds
of a letter of credit and are superior to the assignee's right
to the proceeds.
(f) Neither the rights recognized by this section between
an assignee and an issuer, transferee beneficiary, or nominated
person nor the issuer's or nominated person's payment of
proceeds to an assignee or a third person affect the rights
between the assignee and any person other than the issuer,
transferee beneficiary, or nominated person. The mode of
creating and perfecting a security interest in or granting an
assignment of a beneficiary's rights to proceeds is governed by
article 9 or other law. Against persons other than the issuer,
transferee beneficiary, or nominated person, the rights and
obligations arising upon the creation of a security interest or
other assignment of a beneficiary's right to proceeds and its
perfection are governed by article 9 or other laws.
Sec. 15. [336.5-115] [STATUTE OF LIMITATIONS.]
An action to enforce a right or obligation arising under
this article must be commenced within one year after the
expiration date of the relevant letter of credit or one year
after the claim for relief accrues, whichever occurs later. A
claim for relief accrues when the breach occurs, regardless of
the aggrieved party's lack of knowledge of the breach.
Sec. 16. [336.5-116] [CHOICE OF LAW AND FORUM.]
(a) The liability of an issuer, nominated person, or
adviser for action or omission is governed by the law of the
jurisdiction chosen by an agreement in the form of a record
signed or otherwise authenticated by the affected parties in the
manner provided in section 336.5-104 or by a provision in the
person's letter of credit, confirmation, or other undertaking.
The jurisdiction whose law is chosen need not bear any relation
to the transaction.
(b) Unless subsection (a) applies, the liability of an
issuer, nominated person, or adviser for action or omission is
governed by the law of the jurisdiction in which the person is
located. The person is considered to be located at the address
indicated in the person's undertaking. If more than one address
is indicated, the person is considered to be located at the
address from which the person's undertaking was issued. For the
purpose of jurisdiction, choice of law, and recognition of
interbranch letters of credit, but not enforcement of a
judgment, all branches of a bank are considered separate
juridical entities and a bank is considered to be located at the
place where its relevant branch is considered to be located
under this subsection.
(c) Except as otherwise provided in this subsection, the
liability of an issuer, nominated person, or adviser is governed
by any rules of custom or practice, such as the Uniform Customs
and Practice for Documentary Credits, to which the letter of
credit, confirmation, or other undertaking is expressly made
subject. If (i) this article would govern the liability of an
issuer, nominated person, or adviser under subsection (a) or
(b), (ii) the relevant undertaking incorporates rules of custom
or practice, and (iii) there is conflict between this article
and those rules as applied to that undertaking, those rules
govern except to the extent of any conflict with the nonvariable
provisions specified in section 336.5-103(c).
(d) If there is conflict between this article and article
3, 4, 4A, or 9, this article governs.
(e) The forum for settling disputes arising out of an
undertaking within this article may be chosen in the manner and
with the binding effect that governing law may be chosen in
accordance with subsection (a).
Sec. 17. [336.5-117] [SUBROGATION OF ISSUER, APPLICANT,
AND NOMINATED PERSON.]
(a) An issuer that honors a beneficiary's presentation is
subrogated to the rights of the beneficiary to the same extent
as if the issuer were a secondary obligor of the underlying
obligation owed to the beneficiary and of the applicant to the
same extent as if the issuer were the secondary obligor of the
underlying obligation owed to the applicant.
(b) An applicant that reimburses an issuer is subrogated to
the rights of the issuer against any beneficiary, presenter, or
nominated person to the same extent as if the applicant were the
secondary obligor of the obligations owed to the issuer and has
the rights of subrogation of the issuer to the rights of the
beneficiary stated in subsection (a).
(c) A nominated person who pays or gives value against a
draft or demand presented under a letter of credit is subrogated
to the rights of:
(1) the issuer against the applicant to the same extent as
if the nominated person were a secondary obligor of the
obligation owed to the issuer by the applicant;
(2) the beneficiary to the same extent as if the nominated
person were a secondary obligor of the underlying obligation
owed to the beneficiary; and
(3) the applicant to the same extent as if the nominated
person were a secondary obligor of the underlying obligation
owed to the applicant.
(d) Notwithstanding any agreement or term to the contrary,
the rights of subrogation stated in subsections (a) and (b) do
not arise until the issuer honors the letter of credit or
otherwise pays and the rights in subsection (c) do not arise
until the nominated person pays or otherwise gives value. Until
then, the issuer, nominated person, and the applicant do not
derive under this section present or prospective rights forming
the basis of a claim, defense, or excuse.
Sec. 18. [APPLICABILITY.]
This act applies to a letter of credit that is issued on or
after the effective date of this act. This act does not apply
to a transaction, event, obligation, or duty arising out of or
associated with a letter of credit that was issued before the
effective date of this act.
Sec. 19. [SAVINGS CLAUSE.]
A transaction arising out of or associated with a letter of
credit that was issued before the effective date of this act and
the rights, obligations, and interests flowing from that
transaction are governed by any statute or other law amended or
repealed by this act as if repeal or amendment had not occurred
and may be terminated, completed, consummated, or enforced under
that statute or other law.
Sec. 20. [REPEALER.]
Minnesota Statutes 1996, sections 336.5-101; 336.5-102;
336.5-103; 336.5-104; 336.5-105; 336.5-106; 336.5-107;
336.5-108; 336.5-109; 336.5-110; 336.5-111; 336.5-112;
336.5-113; 336.5-114; 336.5-115; 336.5-116; and 336.5-117, are
repealed.
ARTICLE 2
CONFORMING AND MISCELLANEOUS AMENDMENTS
Section 1. Minnesota Statutes 1996, 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.
Letters of Credit. Section 336.5-116.
Applicability of the article on investment securities.
Section 336.8-110.
Perfection provisions of the article on secured
transactions. Section 336.9-103.
Sec. 2. Minnesota Statutes 1996, section 336.2-512, is
amended to read:
336.2-512 [PAYMENT BY BUYER BEFORE INSPECTION.]
(1) Where the contract requires payment before inspection
nonconformity of the goods does not excuse the buyer from so
making payment unless
(a) the nonconformity appears without inspection; or
(b) despite tender of the required documents the
circumstances would justify injunction against honor under the
provisions of this chapter (section 336.5-114 336.5-109(b)).
(2) Payment pursuant to subsection (1) does not constitute
an acceptance of goods or impair the buyer's right to inspect or
any of the buyer's remedies.
Sec. 3. Minnesota Statutes 1996, section 336.9-103, is
amended to read:
336.9-103 [PERFECTION OF SECURITY INTERESTS IN MULTIPLE
STATE TRANSACTIONS.]
(1) Documents, instruments, letters of credit, and ordinary
goods.
(a) This subsection applies to documents and, instruments,
rights to proceeds of written letters of credit, 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) Investment property.
(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. 4. Minnesota Statutes 1996, section 336.9-104, is
amended to read:
336.9-104 [TRANSACTIONS EXCLUDED FROM ARTICLE.]
This article does not apply
(a) to a security interest subject to any statute of the
United States such as the Ship Mortgage Act, 1920, to the extent
that such statute governs the rights of parties to and third
parties affected by transactions in particular types of
property; or
(b) to a landlord's lien; or
(c) to a lien given by statute or other rule of law for
services or materials except as provided in section 336.9-310 on
priority of such liens; or
(d) to a transfer of a claim for wages, salary or other
compensation of an employee; or
(e) to a transfer by a government or governmental
subdivision or agency to the extent that this article conflicts
with special statutory provisions relating to such a transfer;
or
(f) to a sale of accounts or chattel paper as part of a
sale of the business out of which they arose, or an assignment
of accounts or chattel paper which is for the purpose of
collection only, or a transfer of a right to payment under a
contract to an assignee who is also to do the performance under
the contract or a transfer of a single account to an assignee in
whole or partial satisfaction of a preexisting indebtedness; or
(g) to a transfer of an interest or claim in or under any
policy of insurance, except as provided with reference to
proceeds (section 336.9-306) and priorities in proceeds section
(336.9-312); or
(h) to a right represented by a judgment (other than a
judgment taken on a right to payment which was collateral); or
(i) to any right of setoff; or
(j) except to the extent that provision is made for
fixtures in section 336.9-313, to the creation or transfer of an
interest in or lien on real estate, including a lease or rents
thereunder; or
(k) to a transfer in whole or in part of any claim arising
out of tort; or
(l) to a transfer of an interest in any deposit account
(subsection (l) of section 336.9-105), except as provided with
respect to proceeds (section 336.9-306) and priorities in
proceeds (section 336.9-312).; or
(m) except to the extent this article is not superseded by
sections 327.61 to 327.67, to the repossession of a manufactured
home meeting the definition contained in section 327.62; or
(n) to a transfer of an interest in a letter of credit
other than the rights to proceeds of a written letter of credit.
Sec. 5. Minnesota Statutes 1996, 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
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 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.
"Letter of credit," section 336.5-102.
"Note," section 336.3-104.
"Proceeds of a letter of credit," section 336.5-114(a).
"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. 6. Minnesota Statutes 1996, 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, rights to
proceeds of written letters of credit, 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. 7. Minnesota Statutes 1996, section 336.9-304, is
amended to read:
336.9-304 [PERFECTION OF SECURITY INTEREST IN INSTRUMENTS,
DOCUMENTS, PROCEEDS OF A WRITTEN LETTER OF CREDIT, 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
the rights to proceeds of a written letter of credit can be
perfected only by the secured party's taking possession of the
letter of credit. A security interest in money or instruments
(other than 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, 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, 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. 8. Minnesota Statutes 1996, 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, money, negotiable documents, or chattel paper may
be perfected by the secured party's taking possession of the
collateral. A security interest in the rights to proceeds of a
written letter of credit may be perfected only by the secured
party's taking possession of the letter of credit. 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. 9. [REVISOR'S INSTRUCTION.]
The revisor shall change the reference to "section
336.5-103" to "section 336.5-102" wherever it appears in
Minnesota Statutes, sections 223.17 and 223.177.
Presented to the governor March 17, 1997
Signed by the governor March 18, 1997, 9:23 a.m.
Official Publication of the State of Minnesota
Revisor of Statutes