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336.9-207 Rights and duties of secured party having possession or control of collateral.

(a) Duty of care when secured party in possession. Except as otherwise provided in subsection (d), a secured party shall use reasonable care in the custody and preservation of collateral in the secured party's possession. In the case of chattel paper or an instrument, reasonable care includes taking necessary steps to preserve rights against prior parties unless otherwise agreed.

(b) Expenses, risks, duties, and rights when secured party in possession. Except as otherwise provided in subsection (d), if a secured party has possession of collateral:

(1) reasonable expenses, including the cost of insurance and payment of taxes or other charges incurred in the custody, preservation, use, or operation of the collateral are chargeable to the debtor and are secured by the collateral;

(2) the risk of accidental loss or damage is on the debtor to the extent of a deficiency in any effective insurance coverage;

(3) the secured party shall keep the collateral identifiable, but fungible collateral may be commingled; and

(4) the secured party may use or operate the collateral:

(A) for the purpose of preserving the collateral or its value;

(B) as permitted by an order of a court having competent jurisdiction; or

(C) except in the case of consumer goods, in the manner and to the extent agreed by the debtor.

(c) Duties and rights when secured party in possession or control. Except as otherwise provided in subsection (d), a secured party having possession of collateral or control of collateral under section 336.9-104, 336.9-105, 336.9-106, or 336.9-107:

(1) may hold as additional security any proceeds, except money or funds, received from the collateral;

(2) shall apply money or funds received from the collateral to reduce the secured obligation, unless remitted to the debtor; and

(3) may create a security interest in the collateral.

(d) Buyer of certain rights to payment. If the secured party is a buyer of accounts, chattel paper, payment intangibles, or promissory notes or a consignor:

(1) subsection (a) does not apply unless the secured party is entitled under an agreement:

(A) to charge back uncollected collateral; or

(B) otherwise to full or limited recourse against the debtor or a secondary obligor based on the nonpayment or other default of an account debtor or other obligor on the collateral; and

(2) subsections (b) and (c) do not apply.

HIST: 2000 c 399 art 1 s 17

* NOTE: This section, as added by Laws 2000, chapter 399, *article 1, section 17, is effective July 1, 2001. Laws 2000, *chapter 399, article 1, section 130.

* NOTE: Minnesota Statutes 1998, section 336.9-207, which *reads as follows, is repealed July 1, 2001. Laws 2000, chapter *399, article 1, section 130.

* "336.9-207 Rights and duties when collateral is in *secured party's possession.

* (1) A secured party must use reasonable care in the custody *and preservation of collateral in the secured party's *possession. In the case of an instrument or chattel paper *reasonable care includes taking necessary steps to preserve *rights against prior parties unless otherwise agreed.

* (2) Unless otherwise agreed, when collateral is in the *secured party's possession

* (a) reasonable expenses (including the cost of any *insurance and payment of taxes or other charges) incurred in the *custody, preservation, use or operation of the collateral are *chargeable to the debtor and are secured by the collateral;

* (b) the risk of accidental loss or damage is on the debtor *to the extent of any deficiency in any effective insurance *coverage;

* (c) the secured party may hold as additional security any *increase or profits (except money) received from the collateral, *but money so received, unless remitted to the debtor, shall be *applied in reduction of the secured obligation;

* (d) the secured party must keep the collateral identifiable *but fungible collateral may be commingled;

* (e) the secured party may repledge the collateral upon *terms which do not impair the debtor's right to redeem it.

* (3) A secured party is liable for any loss caused by the *secured party's failure to meet any obligation imposed by the *preceding subsections but does not lose the security interest.

* (4) A secured party may use or operate the collateral for *the purpose of preserving the collateral or its value or *pursuant to the order of a court of appropriate jurisdiction or, *except in the case of consumer goods, in the manner and to the *extent provided in the security agreement."