An Act To Implement the Uniform Law Conference Suggested Updates to Article 1 of the Uniform Commercial Code
Maine Legislature, Session 124, LD 1403
Sponsors: HOBBINS
Amends: 10 MRSA §1286, 10 MRSA §9416, 11 MRSA §2, 11 MRSA §3, 11 MRSA §4, 11 MRSA §5, 11 MRSA §8, 11 MRSA §9, 17-A MRSA §902

Legislative Document 
No. 1403 
S.P.506 
In Senate, April 2,' 2009 
An Act To Implement the Uniform Law Conference Suggested 
Updates to Article 1 of the Uniform Commercial Code 
Reference to the Committee on Judiciary sugge~ted and ordered printed. 
Presented by Senator HOBBINS of York. 
Printed on recycled pllper 
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JOY J. O'BRIEN 
Secretary of the Senate 
Be it enacted by the People of the State of Maine as follows: 
PART A 
Sec. A-I. 11 MRSA Art. 1, as amended, is repealed. 
Sec. A-2. 11 MRSA Art. I-A is enacted to read: 
ARTICLE I-A 
GENERAL PROVISIONS 
PART 1 
GENERAL PROVISIONS 
§l-llOl. Short titles 
(1). This Title may be cited as the Uniform Commercial Code. 
(2). 
This Article may be cited as the Uniform Commercial Code - General 
Provisions. 
Official Comments 
(This section is §1-101 of Revision of Uniform Commercial Code, Article 1 -
General Provisions (2001).) 
Source: Former Section 1-101. 
Changes from former law: Subsection (b) is new. It is added in order to make the 
structure of Article t'parallel with that of the other articles of the Uniform Commercial 
Code. 
1. . Each other article of the Uniform Commercial Code (except Articles 10 and 11) 
may also be cited by its own short title. See Sections 2-101, 2A-I01, 3-101, 4-101, 4A-
101,5-101,6-101, 7-101, 8-101, and 9-101. 
§1-ll02. Scope of article 
This Article applies to a transaction to the extent that it is governed by another Article 
of the Uniform Commercial Code. 
Preliminary Comments 
(This section is §1-102 of Revision of Uniform Commercial Code, Article 1 -
General Provisions (2001).) 
Source: New. 
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1. This section is intended to resolve confusion that has occasionally arisen as to the 
applicability of the substantive rules in this article. This section makes clear what has 
always been the case - the rules in Article 1 apply to transactions to the extent that those 
transactions are governed by one of the other articles of the Uniform Commercial Code. 
See also Comment 1 to Section 1-301. 
§1-1103. Construction of Uniform Commercial Code to promote its purposes and 
policies; applicability of supplemental principles oflaw 
(1). The Uniform Commercial Code must be liberally construed and applied to 
promote its underlying purposes and policies, which are: 
Cal. To simplify, clarify and modernize the law governing commercial transactions; 
Cb). To permit the continued expansion of commercial practices through custom, 
usage and agreement of the parties; and 
Cc). To make uniform the law among the various jurisdictions. 
(2). Unless displaced by the particular provisions of the Uniform Commercial Code, 
the principles of law and equity, including the law merchant and the law relative to 
capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, 
coercion, mistake, bankruptcy and other validating or invalidating cause supplement its 
provisions. 
Official Comments 
(llis section is § 1-1 03 of Revision of Uniform Commercial Code, Article 1 -
General Provisions (2001).) 
Source: Former Section 1-102 (1)-(2); Former Section 1-103. 
Changes from former law: This section is derived from subsections (1) and (2) of 
former Section 1-102 and from former Section 1-103. Subsection (a) of this section 
combines subsections (1) and (2) of former Section 1-102. Except for changing the form 
of reference to the Uniform Commercial Code and minor stylistic changes, its language is 
the same as subsections (1) and (2) of former Section 1-102. Except for changing the 
form of reference to the Uniform Commercial Code and minor stylistic changes, 
subsection (b) of this section is identical to former Section 1-103. The provisions have 
been combined in this section to reflect the interrelationship between them. 
1. The Uniform Commercial Code is drawn to provide flexibility so that, since it is 
intended to be a semi-permanent and infrequently-amended piece of legislation, it will 
provide its own machinery for expansion of commercial practices. It is intended to make 
it possible for the law embodied in the Uniform Commercial Code to be applied by the 
courts in the light of unforeseen and new circumstances and practices. 
The proper 
construction of the Uniform Commercial Code requires, of course, that its interpretation 
and application be limited to its reason. 
Even prior to the enactment of the Uniform Commercial Code, courts were careful to 
keep broad acts from being hampered in their effects by later acts of limited scope. See 
Pacific Wool Growers v. Draper & Co., 158 Or. 1, 73 P.2d 1391 (1937), and compare 
Section 1-104. The courts have often recognized that the policies embodied in an act are 
applicable in reason to subj ect-matter that was not expressly included in the language of 
the act, Commercial Nat. Bank of New Orleans v. Canal-Louisiana Bank & Trust Co., 
U.S. 520, 36 S.Ct. 194, 60 L.Ed. 417 (1916) (bona fide purchase policy of Uniform 
Warehouse Receipts Act extended to case not covered but of equivalent nature), and did 
the same where reason and policy so required, even where the subject-matter had been 
intentionally excluded from the act in general. Agar v. Orda, 264 N. Y. 248, 190 N .E. 479 
(1934) (Uniform Sales Act change in seller's remedies applied to contract for sale of 
choses in action even though the general coverage of that Act was intentionally limited to 
goods "other than things in action.") They implemented a statutory policy with liberal 
and useful remedies not provided in the statutory text. They disregarded a statutory 
limitation of remedy where the reason of the limitation did not apply. Fiterman v. J. N 
Johnson & Co., 156 Minn. 201, 194 N.W. 399 (1923) (requirement of return of the goods 
as a condition to rescission for breach of warranty; also, partial rescission allowed). 
Nothing in the Uniform Commercial Code stands in the way of the continuance of such 
action by the courts. 
The Uniform Commercial Code should be construed in accordance with its 
underlying purposes and policies. The text of each section should beread in the light of 
the purpose and policy of the rule or principle in question, as also of the Uniform 
Commercial Code as a whole, and the application of the language should be construed 
narrowly or broadly, as the case may be, in conformity with the purposes and policies 
involved. 
2. Applicability of supplemental principles of law. Subsection (b) states the basic 
relationship of the Uniform Commercial Code to supplemental bodies of law. 
The 
Uniform Commercial Code was drafted against the backdrop of existing bodies of law, 
including the common law and equity, and relies on those bodies of law to supplement it 
provisions in many important ways. At the same time, the Uniform Commercial Code is 
the primary source of commercial law rules in areas that it governs, and its rules represent 
choices made by its drafters and the enacting legislatures about the appropriate policies to 
be furthered in the transactions it covers. Therefore, while principles of common law and 
equity may supplement provisions of the Uniform Commercial Code, they may not be 
used to supplant its provisions, or the pilrposes and policies those provisions reflect, 
unless a specific provision of the Uniform Commercial Code provides otherwise. In the 
absence of such a provision, the Uniform Commercial Code preempts principles of 
common law and equity that are inconsistent with either its provisions or its purposes and 
policies. 
The language of subsection (b) is intended to reflect both the concept of 
supplementation and the concept of preemption. Some courts, however, had difficulty in 
applying the identical language of former Section 1-103 to determine when other law 
appropriately may be applied to supplement the Uniform Commercial Code, and when 
that law has been displaced by the Code. Some decisions applied other law in situations 
in which that application, while not inconsistent with the text of any particular provision 
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of the Unifonn Commercial Code, clearly was inconsistent with the underlying purposes 
and policies reflected in the relevant provisions of the Code. See, e.g., Sheerbonnet, Ltd. 
v. American Express Bank, Ltd., 951 F. Supp. 403 (S.D.N.Y. 1995). 
In part, this 
difficulty arose from Comment 1 to fonner Section 1-103, which stated that "this section 
indicates the continued applicability to commercial contracts of all supplemental bodies 
of law except insofar as they are explicitly displaced by this Act." The "explicitly 
displaced" language of that Comment did not accurately reflect the proper scope of 
Unifonn Commercial Code preemption, which extends to displacement of other law that 
is inconsistent with the purposes and policies of the Unifonn Commercial Code, as well 
as with its text. 
3. Application of subsection (b) to statutes. The prL'Ilarj focus of Section 1-103 is 
on the relationship between the Unifonn Commercial Code and principles of common 
law and equity as developed by the courts. State law, however, increasingly is statutory. 
Not only are there a growing number of state statutes addressing specific issues that come 
within the scope of the Unifonn Commercial Code, but in some States many general 
principles of common law and equity have been codified. When the other law relating to 
a matter within the scope of the Unifonn Commercial Code is a statute, the principles of 
subsection (b) remain relevant to the court's analysis of the relationship between that 
statute and the Unifonn Commercial Code, but other principles of statutory interpretation 
that specifically address the interrelationship between statutes will be relevant as well. In 
some situations, the principles of subsection (b) still will be determinative. For example, 
the mere fact that an equitable principle is stated in statutory fonn rather than in judicial 
decisions should not change the court's analysis of whether the principle can be used to 
supplement the Uniform Cominercial Code - under subsection (b), equitable principles 
may supplement provisions of the Unifonn Commercial Code only if they are consistent 
with the purposes and policies of the Unifonn Commercial Code as well as its text. In 
other situations, however, other interpretive principles addressing the interrelationship 
between statutes may lead the court to conclude that the other statute is controlling, even 
though it conflicts with the Unifonn Commercial Code. This, for example, would be the 
result in a situation where the other statute was specifically intended to provide additional 
protection to a class of individuals engaging in transactions covered by the Unifonn 
Commercial Code. 
4. Listing not exclusive. The list of sources of supplemental law in subsection (b) is 
intended to be merely illustrative of the other law that may supplement the Unifonn 
Commercial Code, and is not exclusive. No listing could be exhaustive. Further, the fact 
that a particular section of the Unifonn Commercial Code makes express reference to 
other law is not intended to suggest the negation of the general application of the 
principles of subsection (b). Note also that the word "bankruptcy" in subsection (b), 
continuing the use of that word from fonner Section 1-103, should be understood not as a 
specific reference to federal bankruptcy law but, rather as a reference to general 
principles of insolvency, whether under federal or state law. 
§1-1104. Construction against implied repeal 
The Uniform Commercial Code being a general act intended as a unified coverage of 
its subject matter, no part of it may be deemed to be impliedly repealed by subsequent 
legislation if such construction can reasonably be avoided. 
Official Comments 
(This section is § 1-1 04 of Revision of Uniform Commercial Code, Article 1 -
'7 
General Provisions (2001).) 
Source: Former Section 1-104. 
Cbanges from former law: 
Except for changing the form of reference to the 
Uniform Commercial Code, this section is identical to former Section 1-104. 
1. 
This section embodies the policy that an act that bears evidence of carefully 
considered permanent regulative intention should not lightly be regarded as impliedly 
repealed by subsequent legislation. The Uniform Commercial Code, carefully integrated 
and intended as a uniform codification of permanent character covering an entire "field" 
oflaw, is to be regarded as particularly resistant to implied repeal. 
§1-110S. Severability 
If any provision or clause of the Uniform Commercial Code or its application to any 
person or circumstance.is held invalid, the invalidity does not affect other provisions or 
_ applications of the Uniform Commercial Code that can be given effect without the invalid 
provision or application, and to this end the provisions of the Uniform Commercial Code 
are severable. 
Official Comments 
(This section is §1-105 of Revision of Uniform Commercial Code, Article 1 -
General Provisions (2001).) 
Source: Former Section 1-108. 
Changes from former law: 
Except for changing the form of reference to the 
Uniform Commercial Code, this section is identical to former Section 1-108. 
1. This is the model severability section recommended by the National Conference 
of Commissioners on Uniform State Laws for inclusion in all acts of extensive scope. 
§1-1106. Use of singular and plural; gender 
In the Uniform Commercial Code, unless the statutory context otherwise requires: 
(1). Words in the singular number include the plural and those in the plural include 
the singular: and 
(2). Words of any gender also refer to any other gender. 
Official Comments 
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(This section is § 1-106 of Revision of Unifonn Commercial Code, Article 1 -
General Provisions (2001).) 
Source: Fonner Section 1-102(5). See also 1 U.S.C. Section 1. 
Changes from former law: 
Other than minor stylistic changes, this section is 
identical to fonner Section 1-102(5). 
1. This section makes it clear that the use of singular or plural in the text of the 
Unifonn Commercial Code is generally only a matter of drafting style - singular words 
may be applied in the plural, and plural words may be applied in the singular. Only 
when it is clear from the statutory context that the use of the singular or plural does not 
include the other is this rule inapplicable. See, e.g., Section 9-322. 
§1-1107. Section captions 
Section captions are part of the Unifonn Commercial Code. 
Official Comments 
(This section is §1-107 of Revision of Unifonn Commercial Code, Article 1 -
General Provisions (2001).) 
Source: Fonner Section 1-109. 
Changes from former law: None. 
1. Section captions are a part of the text of the Unifonn Commercial Code, and not 
mere surplusage. This is not the case, however, with respect to subsection headings 
appearing in Article 9. See Comment 3 to Section 9-101 ("subsection headings are not a 
part of the official text itself and have not been approved by the sponsors."). 
§1-110S. Relation to electronic signatures in Electronic Signatures in Global and 
National Commerce Act 
This Article modifies, limits and supersedes the federal Electronic Signatures in 
Global and National Commerce Act, 15 United States Code, Section 7001 et seq., except 
that nothing in this Article modifies, limits or supersedes Section 7001(c) of that Act or 
authorizes electronic delivery of any of the notices described in Section 7003(b) of that 
Act. 
Official Comments 
(This section is §1-108 of Revision of Unifonn Commercial Code, Article 1 -
General Provisions (2001).) 
Source: New 
1. The federal Electronic Signatures in Global and National Commerce Act, 15 
U.S.C. Section 7001 et seq became effective in 2000. Section 102(a) of that Act provides 
that a State statute may modify, limit, or supersede the provisions of section 101 of that 
Act with respect to state law if such statute, inter alia, specifies the alternative procedures 
or requirements for the use or acceptance (or both) of electronic records or electronic 
signatures to establish the legal effect, validity, or enforceability of contracts or other 
records, and (i) such alternative procedures or requirements are consistent with Titles I 
and II of that Act, (U) such alternative procedures or requirements do not require, or 
accord greater legal status or effect to, the implementation or application of a specific 
technology or technical specification for performing the functions of creating, storing, 
generating, receiving, communicating, or authenticating electronic records or electronic 
signatures; and (iii) if enacted or adopted after the date of the enactment of that Act, 
makes specific reference to that Act. Article 1 fulfills the first two of those three criteria; 
this Section fulfills the third criterion listed above. 
2. As stated in this section, however, Article 1 does not modify, limit, or supersede 
Section 101(c) of the Electronic Signatures in Global and National Commerce Act 
(requiring affmnative consent from a consumer to electronic delivery of transactional 
disclosures that are required by state law to be in writing); nor does it authorize electronic 
delivery of any of the notices described in Section 1 03(b) of that Act. 
PART 2 
GENERAL DEFINITIONS AND PRINCIPLES OF INTERPRETATION 
§1-1201. General definitions 
Unless the context otherwise requires, words or phrases defined in this section, or in 
the additional definitions contained in other Articles of the Uniform Commercial Code 
that apply to particular Articles or Parts thereof, have the meanings stated. 
Subject to definitions contained in other Articles of the Uniform Commercial Code 
that apply to particular Articles or Parts thereof, the following terms have the following 
meanings. 
(1). 
"Action,'" in· the sense of a judicial proceeding, includes recoupment, 
counterclaim, set-off, suit in equity and any other proceeding in which rights are 
determined. 
(2). "Aggrieved party" means a party entitled to pursue a remedy. 
(3). "Agreement," as distinguished from "contract," means the bargain of the parties 
in fact, as found in their language or inferred from other circumstances, including course 
of performance, course of dealing or usage of trade as provided in section 1-1303. 
(4). "Bank" means a person engaged in the business of banking and includes a 
savings bank, savings and loan association, credit union and trust company. 
(5). "Bearer" means a person in control of a negotiable electronic document of title 
or a person in possession of a negotiable instrument, negotiable tangible document of title 
or certificated security that is payable to bearer or indorsed in blank. 
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(6). "Bill of lading" means a document of title evidencing the receipt of goods for 
shipment issued by a person engaged in the business of directly or indirectly transporting 
or forwarding goods. The term does not include a warehouse receipt. 
(7). "Branch" includes a separately incorporated foreign branch of a bank. 
(8). "Burden of establishing" a fact means the burden of persuading the trier of fact 
that the existence of the fact is more probable than its nonexistence. 
(9). 
"Buyer in ordinary course of business" means a person that buys goods in good 
faith, without lmowledge that the sale violates the rights of another person in the goods, 
and in the ordinary course from a person, other than a pawnbroker, in the business of 
selling goods of that kind. A person buys goods in the ordinary course if the sale to the 
person comports with the usual or customary practices in the kind of business in which 
the seller is engaged or with the seller's own usual or customary practices. A person that 
sells oil, gas or other minerals at the wellhead or minehead is a person in the business of 
selling goods of that kind. A buyer in ordinary course of business may buy for cash, by 
exchange of other property or on secured or unsecured credit, and may acquire goods or 
documents of title under a preexisting contract for sale. 
Only a buyer that takes 
possession of the goods or has a right to recover the goods from the seller under Article 2 
may be a buyer in ordinary course of business. "Buyer in ordinary course of business" 
does not include a person that acquires goods in a transfer in bulk or as security for or in 
total or partial satisfaction of a money debt. 
(10). 
"Conspicuous," with reference to a term, means so written, displayed or 
presented that a reasonable person against which it is to operate ought to have noticed it. 
Whether a term is "conspicuous" or not is a decision for the court. Conspicuous terms 
include the following: 
Cal. A heading in capitals equal to or greater in size than the surrounding text, or in 
contrasting type, font or color to the surrounding text of the same or lesser size; and 
Cb). Language iIi the body of a record or display in larger type than the surrounding 
text, or in contrasting type, font or color to the surrounding text of the same size, or 
set off from surrounding text of the same size by symbols or other marks that call 
attention to the language. 
(11). "Consumer" means an individual who enters into a transaction primarily for 
personal, family or household purposes. 
(12). "Contract," as distinguished from "agreement," means the total legal obligation 
that results from the parties' agreement as determined by the Uniform Commercial Code 
as supplemented by any other applicable laws. 
(13). "Creditor" includes a general creditor, a secured creditor, a lien creditor and 
any representative of creditors, including an assignee for the benefit of creditors, a trustee 
in bankruptcy, a receiver in equity and an executor or administrator of an insolvent 
debtor's or assignor's estate. 
(14). "Defendant" includes a person in the position of defendant in a counterclaim, 
cross-claim or 3rd-party claim. 
(15). "Delivery," with respect to an electronic document of title means voluntary 
transfer of control and with respect to an instrument, a tangible document of title or 
chattel paper, means voluntary transfer of possession. 
(16). "Document oftitle" means a record: 
Cal. That in the regular course ,of business or fmancing is treated as adequately 
evidencing that the person in possession or control of the record is entitled to receive, 
control, hold and dispose of the record and the goods the record covers; and 
(b). Thatpurports to be issued by or addressed to a bailee and to cover goods in the 
bailee's possession that are either identified or are fungible portions of an identified 
mass. 
The term includes a bill of lading, transport document, dock warrant, dock receipt, 
warehouse receipt and order for delivery of goods. An electronic document oftitle means 
a document of title evidenced by a record consisting of information stored in an electronic 
medium. Atangible document of title means a document of title evidenced by a record 
consisting of information that is inscribed on a tangible medium. 
(17). "Fault" means a default, breach or wrongful act or omission. 
(18). "Fungible goods" means: 
Cal. Goods of which any unit, by nature or usage of trade, is the equivalent of any 
other like unit; or 
(b). Goods that by agreement are treated as equivalent. 
(19). "Genuine" means free of forgery or counterfeiting. 
(20). "Good faith," except as otherwise provided in Article 5, means honesty in fact 
and the observance of reasonable commercial standards of fair dealing. 
(21). "Holder" means: 
Cal. The person in possession of a negotiable instrument that is payable either to 
bearer or to an identified person that is the person in possession; 
Cb). The person in possession of a negotiable tangible document of title if the goods 
are deliverable either to bearer or to the order of the person in possession; and 
Cc). The person in control of a negotiable electronic document of title. 
(22). "Insolvency proceeding" includes an assignment for the benefit of creditors or 
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other proceeding intended to liquidate or rehabilitate the estate of the person involved. 
(23). "Insolvent" means: 
Cal. Having generally ceased to pay debts in the ordinary course of business other 
than as a result of bona fide dispute; 
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(b). Being unable to pay debts as they become due; or 
(c). Being insolvent within the meaning of federal banlauptcy law. 
(24). "Money" means a medium of exchange currently authorized or adopted by a 
domestic or foreign government. 
The term includes a monetary unit of account 
established by an intergovernmental organization or by agreement between 2 or more 
countries. 
(25). "Organization" means a person other than an individual. 
(26). "Party," as distinguished from "3rd party," means a person that has engaged in 
a transaction or made an agreement subject to the Uniform Commercial Code. 
(27). 
"Person" means an individual, corporation, business trust, estate, trust, 
partnership, limited liability company, association, joint venture, government, 
governmental subdivision, agency or instrumentality, public corporation or any other 
legal or commercial entity. 
(28). "Present value" means the amount as of a date certain of one or more sums 
payable in the future, discounted to the date certain by use of either an interest rate 
specified by the parties if that rate is not manifestly unreasonable at the time the 
transaction is entered into or, if an interest rate is not so specified, a commercially 
reasonable rate that takes into account the facts and circumstances at the time the 
transaction is entered into. 
(29). 
"Purchase" means taking by sale, lease, discount, negotiation, mortgage, 
pledge, lien, security interest, issue or reissue, gift or any other voluntary transaction 
creating an interest in property. 
(30). "Purchaser" means a person that takes by purchase. 
(31). "Record" means information that is inscribed on a tangible medium or that is 
stored in an electronic or other medium and is retrievable in perceivable form. 
(32). "Remedy" means any remedial right to which an aggrieved party is entitled 
with or without resort to a tribunal. 
(33). "Representative" means a person empowered to act for another, including an 
agent, an officer of a corporation or association and a trustee, executor or administrator of 
an estate. 
(34). "Right" includes remedy. 
(35). 
"Security interest" means an interest in personal property or fixtures that 
secures payment or performance of an obligation. 
"Security interest" includes any 
interest of a consignor and a buyer of accounts, chattel paper, a payment intangible or a 
promissory note in a transaction that is subject to Article 9-A. "Security interest" does 
not include the special property interest of a buyer of goods on identification of those 
goods to a contract for sale under section 2-401, but a buyer may also acquire a "security 
interest" by complying with Article 9-A. Except as otherwise provided in section 2-505, 
the right of a seller or lessor of goods under Article 2 or 2-A to retain or acquire 
possession of the goods is not a "security interest," but a seller or lessor may also acquire 
a "security interest" by complying with Article 9-A. The retention or reservation of title 
by a seller of goods notwithstanding shipment or delivery to the buyer under section 
2-401 is limited in effect to a reservation of a "security interest." Whether a transaction in 
the form of a lease creates a "security interest" is determined pursuant to section 1-1203. 
(36). "Send" in connection with a writing, record or notice means: 
Cal. To deposit in the mail or deliver for transmission by any other usual means of 
communication with postage or cost of transmission provided for and properly 
addressed and, in the case of an instrument, to an address specified thereon or 
otherwise agreed, or if there be none to any address reasonable under the 
circumstances; or 
(b). In any other way to cause to be received any record or notice within the time it 
would have arrived if properly sent. 
(37). "Signed" includes using any symbol executed or adopted with present intention 
to adopt or accept a writing. 
(38). "State" means a state of the United States, the District of Columbia, Puerto 
Rico, the United States Virgin Islands or any territory or insular possession subject to the 
jurisdiction of the United States. 
(39). "Surety" includes a guarantor or other secondary obligor. 
(40). "Term" means a portion of an agreement that relates to a particular matter. 
(41). "Unauthorized signature" means a signature made without actual, implied or 
apparent authority. The term includes a forgery. 
(42). "Warehouse receipt" means a document of title issued by a person engaged in 
the business of storing goods for hire. 
(43). "Writing" includes printing, typewriting or any other intentional reduction to 
tangible form. "Written" has a corresponding meaning. 
Official Comments . 
(This section is § 1-20 1 of Revision of Uniform Commercial Code, Article 1 -
General Provisions (2001) and amended in 2003 with Article 7.) 
Source: Former Section 1-201. 
Cbanges from former law: In order to make it clear that all definitions in the 
Uniform Commercial Code (not just those appearing in Article 1, as stated in former 
Section 1-201, but also those appearing in other Articles) do not apply if the context 
otherwise requires, a new subsection (a) to that effect has been added, and the definitions 
now appear in subsection (b). The reference in subsection (a) to the "context" is intended 
to refer to the context in which the defmed term is used in the Uniform Commercial 
Code. In other words, the definition applies whenever the defmed term is used unless the 
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context in which the defmed term is used in the statute indicates that the term was not 
used in its defmed sense. 
Consider, for example, Sections 3-103(a)(9) (defIDing 
"promise," in relevant part, as "a written undertaking to pay money signed by the person 
undertaking to pay") and 3-303(a)(1) (indicating that an instrument is issued or 
transferred for value if "the instrument is issued or transferred for a promise of 
performance, to the extent that the promise has been performed"). It is clear from the 
statutory context of the use of the word "promise" in Section 3-303(a)(1) that the term 
was not used in the sense of its defmition in Section 3-103(a)(9). Thus, the Section 3-
103(a)(9) defmition should riot be used to give meaning to the word ''promise'' in Section 
3-303(a). 
Some definitions in former Section 1-201 have been reformulated as substantive 
provisions and have been moved to other sectiOlIs. 
See Sections 1-202 (explicating 
concepts of notice and knowledge formerly addressed in Sections 1-201(25)-(27», 1-204 
(determining when a person gives value for rights, replacing the definition of ''value'' in 
former Section 1-201(44», and 1-206 (addressing the meaning of presumptions, replacing 
the definitions of "presumption" and "presumed" in former Section 1-201(31». 
Similarly, the portion of the defmition of "security interest" in former Section 1-201(37) 
which explained the difference between a security interest and a lease has been relocated 
to Section 1-203. 
Two definitions in former Section 1-201 have been deleted. 
The defmition of 
"honor" in former Section 1-201(21) has been moved to Section 2-103(1)(b), inasmuch as 
the definition only applies to the use of the word in Article 2. 
The definition of 
"telegram" in former Section 1-201(41) has been deleted because that word no longer 
appears in the defmition of "conspicuous." 
Other than minor stylistic changes and renumbering, the remaining defmitions in this 
section are as in former Article 1 except as noted below. 
1. "Action." Unchanged from former Section 1-201, which was derived from similar 
defmitions in Section 191, Uniform Negotiable Instruments Law; Section 76, Uniform 
Sales Act; Section 58, Uniform Warehouse Receipts Act; Section 53, Uniform Bills of 
Lading Act. 
2. "Aggrieved party." Unchanged from former Section 1-201. 
3. "Agreement." Derived from former Section 1-201. As used in the Uniform 
Commercial Code the word is intended to include full recognition of usage of trade, 
course of dealing, course of performance and the surrounding circumstances as effective 
parts thereof, and of any agreement permitted under the provisions of the Uniform 
Commercial Code to displace a stated rule of law. Whether an agreement has legal 
consequences is determined by applicable provisions of the Uniform Commercial Code 
and, to the extent provided in Section 1-103, by the law of contracts. 
4. "Bank." Derived from Section 4A-104. 
5. "Bearer." Unchanged, except in one respect, from former Section 1-201, which 
was derived from Section 191, Uniform Negotiable Instruments Law. The term bearer 
2, 
applies to negotiable documents of title and has been broadened to include a person in 
control of an electronic negotiable document of title. Control of an electronic document 
oftitle is defmed in Article 7 (Section 7-102). 
6. "Bill of Lading." Derived from former Section 1-201. The reference to, and 
defmition of, an "airbill" has been deleted as no longer necessary. A bill of lading is one 
type of document of title as defined in subsection (16). This definition should be read in 
conjunction with the definition of carrier in Article 7 (Section 7-102). 
7. "Branch." Unchanged from former Section 1-201. 
8. "Burden of establishing a fact." Unchanged from former Section 1-201. 
109. "Buyer in ordinary course of business." Except for minor stylistic changes, 
identical to former Section 1-201 (as amended in conjunction with the 1999 revisions to 
Article 9). The major significance of the phrase lies in Section 2-403 and in the Article 
on Secured Transactions (Article 9). 
The first sentence of paragraph (9) makes clear that a buyer from a pawnbroker 
cannot be a buyer in ordinary course of business. The second sentence explains what it 
means to buy "in the ordinary course." The penultimate sentence prevents a buyer that 
does not have the right to possession as against the seller from being a buyer in ordinary 
course of business. Concerning when a buyer obtains possessory rights, see Sections 
2-502 and 2-716. However, the penultimate sentence is not intended to affect a buyer's 
status as a buyer in ordinary course of business in cases (such as a "drop shipment") 
involving delivery by the seller to a person buying from the buyer or a donee from the 
buyer. The requirement relates to whether as against the seller the buyer or one taking 
through the buyer has possessory rights. 
10. "Conspicuous." Derived from former Section 1-201(10). This definition states 
the general standard that to be conspicuous a term ought to be noticed by a reasonable 
person. Whether a term is conspicuous is an issue for the court. Subparagraphs (A) and 
(B) set out several methods for making a term conspicuous. Requiring that a term be 
conspicuous blends a notice function (the term ought to be noticed) and a planning 
function (giving guidance to the party relying on the term regarding how that result can 
be achieved). Although these paragraphs indicate some of the methods for making a term 
attention-calling, the test is whether attention can reasonably be expected to be called to 
it. The statutory language should riot be construed to permit a result that is inconsistent 
with that test. 
11, "Consumer." Derived from Section 9-102(a)(25). 
12. "Contract." Except for minor stylistic changes, identical to former Section 
1-201. 
13. "Creditor." Unchanged from former Section 1-201. 
14. "Defendant." Except for minor stylistic changes, identical to former Section 
1-201, which was derived from Section 76, Uniform Sales Act. 
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15. "Delivery." Derived from fonner Section 1-201. The reference to certificated 
securities has been deleted in light of the more specific treatment of the matter in Section 
8-301. The definition has been revised to accommodate electronic documents of title. 
Control of an electronic document of title is defined in Article 7 (Section 7-106). 
16. "Document of title." Derived from fonner Section 1-201, which was derived 
from Section 76, Unifonn Sales Act. This definition makes explicit that the obligation or 
designation of a third party as "bailee" is essential to a document of title and clearly 
rejects any such result as obtained in Hixson v. Ward, 254 1ll.App. 505 (1929), which 
treated a conditional sales contract as a document of title. Also the definition is left open 
so that new types of documents may be included, including documents which gain 
commercial recognition in the international arena. See UNCITRAL Draft Instrument on 
the Ca.rriage of Goods By Sea.. It is unforeseeable what doctLrnents may one day serve 
the essential purpose now filled by warehouse receipts and bills of lading. The definition 
is stated in tenns of the function of the documents with the intention that any document 
which gains commercial recognition as accomplishing the desired result shall be included 
within its scope. Fungible goods are adequately identified within the language of the 
definition by identification of the mass of which they are a part. 
Dock warrants were within the Sales Act definition of document of title apparently 
for the purpose of recognizing a valid tender by means of such paper. 
In current 
commercial practice a dock warrant or receipt is a kind of interim certificate issued by 
shipping companies upon delivery of the goods at the dock, entitling a designated person 
to be issued a bill of lading. The receipt itself is invariably nOllllegotiable in fonn 
although it may indicate that a negotiable bill is to be forthcoming. Such a document is 
not within the general compass of the definition, although trade usage may in some cases 
entitle such paper to be treated as a document of title. If the dock receipt actually 
represents a storage obligation undertaken by the shipping company, then it is a 
warehouse receipt within this section regardless of the name given to the instrument. 
The goods must be "described," but the description may be by marks or labels and 
may be qualified in such a way as to disclaim personal knowledge of the issuer regarding 
contents or condition. However, baggage and parcel checks and similar "tokens" of 
storage which identify stored goods only as those received in exchange for the token are 
not covered by this Article. The definition is broad enough to include an airway bill. 
A document of title may be either tangible or electronic. Tangible documents of title 
should be construed to mean traditional paper documents. Electronic documents of title 
are documents that are stored in an electronic medium instead of in tangible fonn. The 
concept of an electronic medium should be construed liberally to include electronic, 
digital, magnetic, optical, electromagnetic, or any other current or similar emerging 
technologies. As to reissuing a document of title in an alternative medium, see Article 7, 
Section 7-105. Control for electronic documents of title is defmed in Article 7 (Section 
7-106). 
17. "Fault." Derived from fonner Section 1-201. "Default" has been added to the 
list of events constituting fault. 
18. "Fungible goods." Derived from former Section 1-201. References to securities 
have been deleted because Article 8 no longer uses the term "fungible" to describe 
securities. Accordingly, this provision now defines the concept only in the context of 
goods. 
19. "Genuine." Unchanged from former Section 1-201. 
20. "Good faith." Former Section 1-201(19) defined "good faith" simply as honesty 
in fact; the definition contained no element of commercial reasonableness. Initially, that 
definition applied throughout the Code with only one exception. Former Section 2-
103(1)(b) provided that "in that Article, "'good faith' in the case of a merchant means 
honesty in fact and the observance of reasonable commercial standards of fair dealing in 
the trade." This alternative definition was limited in applicability, though, because it 
applied only to transactions within the scope of Article 2 and it applied only to merchants. 
Over time, however, amendments to the Uniform Commercial Code brought the 
Article 2 merchant concept of good faith (subjective honesty and objective commercial 
reasonableness) into other Articles. First, Article 2A explicitly incorporated the Article 2 
standard. See Section 2A-l 03(7). Then, other Articles broadened the applicability of that 
standard by adopting it for all parties rather thanjust for merchants. See, e.g., Sections 3-
103(a)(4), 4A-105(a)(6), 7-102(a)(6), 8-102(a)(10), and 9-102(a)(43). Finally, Articles 2 
and 2A were amended so as to apply the standard to non-merchants as well as merchants. 
See Sections 2-103(1)(j), 2A-103(1)(m). All of these definitions are comprised of two 
elements - honesty in fact and the observance of reasonable commercial standards of fair 
dealing. 
Only revised Article 5 defines "good faith" solely in terms of subjective 
honesty, and only Article 6 (in the few states that have not chosen to delete the Article) is 
without a definition of good faith. (It should be noted that, while revised Article 6 did not 
defme good faith, Comment2 to revised Section 6-102 states that "this Article adopts the 
defmition of 'good faith' in Article 1 in all cases, even when the buyer is a merchant.") 
Thus, the defmition of "good faith" in this section merely confirms what has been the 
case for a number of years as Articles of the UCC have been amended or revised - the 
obligation of "good faith," applicable in each Article, is to be interpreted in the context of 
all Articles except for Article 5 as including both the subjective element of honesty in fact 
and the objective element of the observance of reasonable commercial standards of fair 
dealing. As a result, both the subjective and objective elements are part of the standard of 
"good faith," whether that obligation is specifically referenced in another Article of the 
Code (other than Article 5) or is provided by this Article. 
Of course, as noted in the statutory text, the defmition of "good faith" in this section 
does not apply when the narrower defmition of "good faith" in revised Article 5 is 
applicable. 
As noted above, the defmition of "good faith" in this section requires not only 
honesty in fact but also "observance of reasonable commercial standards of fair dealing." 
Although "fair dealing" is a broad term that must be defmed in context, it is clear that it is 
concerned with the fairness of conduct rather than the care with which an act is 
performed. This is an entirely different concept than whether a party exercised ordinary 
care in conducting a transaction. Both concepts are to be determined in the light of 
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reasonable conunercial standards, but those standards in each case are directed to 
different aspects of commercial conduct. See e.g., Sections 3-103(a)(9) and 4-104(c) and 
Conunent 4 to Section 3-103. 
21. 
"Holder." Derived from former Section 1-201. 
The definition has been 
reorganized for clarity and amended to provide for electronic negotiable documents of 
title. 
22. "Insolvency proceedings." Unchanged from former Section 1-201. 
23. "Insolvent." Derived from former Section 1-201. The three tests of insolvency -
"generally ceased to pay debts in the ordinary course of business other than as a result of 
a bona fide dispute as to them," "unable to pay debts as they become due," and "insolvent 
within the meaning of the federal banlauptcy law" - are expressly set up as alternative 
tests and must be approached from a commercial standpoint. 
24. "Money." Substantively identical to former Section 1-201. The test is that of 
sanction of government, whether by authorization before issue or adoption afterward, 
which recognizes the circulating medium as a part of the official currency of that 
government. The narrow view that money is limited to legal tender is rejected. 
25. "Organization." The former definition of this word has been replaced with the 
standard definition used in acts prepared by the National Conference of Commissioners 
on Uniform State Laws. 
26. "Party." Substantively identical to former Section 1-201. Mention of a party 
includes, of course, a person acting through an agent. However, where an agent comes 
into opposition or contrast to the principal, particular account is taken of that situation. 
27. "Person." The former definition of this word has been replaced with the standard 
definition used in acts prepared by the National Conference of Commissioners on 
Uniform State Laws. 
28. "Present value." This definition was formerly contained within the definition of 
"security interest" in former Section 1-201(37). 
29. "Purchase." Derived from former Section 1-201. The form of definition has 
been changed from "includes" to "means." 
30. "Purchaser." Unchanged from former Section 1-201. 
31. "Record." Derived from Section 9-102(a)(69). 
32. "Remedy." Unchanged from former Section 1-201. The purpose is to make it 
clear that both remedy and right (as defined) include those remedial rights of "self help" 
which are among the most important bodies of rights under the Uniform Commercial 
Code, remedial rights being those to which an aggrieved party may resort on its own. 
33. "Representative." Derived from former Section 1-201. Reorganized, and form 
changed from "includes" to "means." 
4· 
34. "Right." Except for minor stylistic changes, identical to former Section 1-201. 
35. "Security Interest." The defInition is the first paragraph of the defInition of 
"security interest" in former Section 1-201, with minor stylistic changes. The remaining 
portion of that definition has been moved to Section 1-203. Note that, because of the 
scope of Article 9, the term includes the interest of certain outright buyers of certain kinds 
of property. 
36. "Send." Derived from former Section 1-201. Compare "notifies". 
37. "Signed." Derived from former Section 1-201. Former Section 1-201 referred to 
"intention to authenticate"; because other articles now use the term "authenticate," the 
language has been changed to "intention to adopt or accept." The latter formulation is 
derived from the defInition of "authenticate" in Section 9-102(a)(7). This provision 
refers only to writings, because the term "signed," as used in some articles, refers only to 
writings. This provision also makes it clear that, as the term "signed" is used in the 
Uniform Commercial Code, a complete signature is not necessary. The symbol may be 
printed, stamped or written; it may be by initials or by thumbprint. It may be on any part 
of the document and in appropriate cases may be found in a billhead or letterhead. No 
catalog of possible situations can be complete and the court must use common sense and 
commercial experience in passing upon these matters. The question always is whether 
the symbol was executed or adopted by the party with present intention to adopt or accept 
the writing. 
38. "State." This is the standard defInition of the term used in acts prepared by the 
National Conference of Commissioners on Uniform State Laws. 
39. "Surety." This definition makes it clear that "surety" includes all secondary 
obligors, not just those whose obligation refers to the person obligated as a surety. As to 
the nature of secondary obligations generally, see Restatement (Third), Suretyship and 
Guaranty Section 1 (1996). 
40. "Term." Unchanged from former Section 1-201. 
41. "Unauthorized signature." Unchanged from former Section 1-201. 
42. "Warehouse receipt." Derived from former Section 1-201, which was derived 
from Section 76(1), Uniform Sales Act; Section 1, Uniform Warehouse Receipts Act. 
Receipts issued by a fIeld warehouse are included, provided the warehouseman and the 
depositor of the goods are different persons. The defInition makes clear that the receipt 
must qualify as a document of title under subsection (16). 
43. "Written" or "writing." Unchanged from former Section 1-201. 
§1-1202. Notice; knowledge 
(1). Subject to subsection (6), a person has "notice" of a fact if the person: 
Cal. Has actuallmowledge of it; 
Cb). Has received a notice or notifIcation of it: or 
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(c). From all the facts and circumstances lrnown to the person at the time in question, 
has reason to lrnow that it exists. 
(2). "Knowledge" means actuallrnowledge. "Knows" has a corresponding meaning. 
(3). "Discover," "learn" or words of similar import refer to knowledge rather than to 
reason to lrnow. 
(4). A person "notifies" or "gives" a notice or notification to another person by taking 
such steps as may be reasonably required to inform the other person in ordinary course, 
whether or not the other person actually comes to lrnow of it. 
(5). Subject to subsection (6), a person "receives" a notice or notification when: 
Cal. It comes to that person's attention; or 
(b). It is duly delivered in a form reasonable under the circumstances at the place of 
business through which the contract was made or at another location held out by that 
person as the place for receipt of such communications. 
(6). Notice, lrnowledge or a notice or notification received by an organization is 
effective for a particular transaction from the time it is brought to the attention of the 
individual conducting that transaction and, in any event, from the time it would have been 
brought to the individual's attention if the organization had exercised due diligence. An 
organization exercises due diligence if it maintains reasonable routines for 
communicating significant information to the person conducting the transaction and there 
is reasonable compliance with the routines. Due diligence does not require an individual 
acting for the organization to communicate information unless the communication is part 
of the individual's regular duties or the individual has reason to lrnow of the transaction 
and that the transaction would be materially affected by the information. 
Official Comments 
(This section is § 1-202 of Revision of Uniform Commercial Code, Article 1 -
General Provisions (2001).) 
Source: Derived from former Section 1-201(25)-(27). 
Changes from former law: These provisions are substantive rather than purely 
definitional. Accordingly, they have been relocated from Section 1:..201 to this section. 
The reference to the "forgotten notice" doctrine has been deleted. 
1. Under subsection (a), a person has notice of a fact when, inter alia, the person has 
received a notification ofthe fact in question. 
2. As provided in subsection (d), the word "notifies" is used when the essential fact 
is the proper dispatch of the notice, not its receipt. Compare "Send." When the essential 
fact is the other party's receipt of the notice, that is stated. Subsection (e) states when a 
notification is received. 
3. 
Subsection (f) makes clear that notice, lrnowledge, or a notification, although 
"received," for instance, by a clerk in Department A of an organization, is effective for a 
transaction conducted in Department B only from the time when it was or should have 
been communicated to the individual conducting that transaction. 
§1-1203. Lease distinguished from security interest 
(1). Whether a transaction in the form of a lease creates a lease or security interest is 
determined by the facts of each case. 
(2). A transaction in the form of a lease creates a security interest if the consideration 
that the lessee is to pay the lessor for the right to possession and use of the goods is an 
obligation for the term of the lease and is not subject to termination by the lessee, and: 
(a). The original term of the lease is equal to or greater than the remaining economic 
life of the goods; 
(b). The lessee is bound to renew the lease for the remaining economic life of the 
goods or is bound to become the owner of the goods; 
(c). The lessee has an option to renew the lease for the remaining economic life of 
the goods for no additional consideration or for nominal additional consideration 
upon compliance with the lease agreement; or 
(d). The lessee has an option to become the owner of the goods for no additional 
consideration or for nominal additional consideration upon compliance with the lease 
agreement. 
(3). A transaction in the form of a lease does not create a security interest merely 
because: 
(a). The present value ofthe consideration the lessee is obligated to pay the lessor for 
the right to possession and use of the goods is substantially equal to or is greater than 
the fair market value of the goods at the time the lease is entered into; 
(b). The lessee assumes risk ofloss of the goods; 
ec). The lessee agrees to pay, with respect to the goods, taxes, insurance, filing, 
recording or registration fees, or service or maintenance costs; 
(d). The lessee has an option to renew the lease or to become the owner of the goods; 
(e). The lessee has an option to renew the lease for a fixed rent that is equal to or 
greater than the reasonably predictable fair market rent for the use of the goods for 
the term of the renewal at the time the option is to be performed; or 
(f). The lessee has an option to become the owner of the goods for a fixed price that 
is equal to or greater than the reasonably predictable fair market value of the goods at 
the time the option is to be performed. 
(4). Additional consideration is nominal if it is less than the lessee's reasonably 
predictable cost of performing under the lease agreement if the option is not exercised. 
Additional consideration is not nominal if: 
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Cal. When the option to renew the lease is granted to the lessee, the rent is stated to 
be the fair market rent for the use of the goods for the term of the renewal determined 
at the time the option is to be performed; or 
(b). When the option to become the owner of the goods is granted to the lessee, the 
. price is stated to be the fair market value of the goods determined at the time the 
option is to be performed. 
(5). The "remaining economic life of the goods" and "reasonably predictable" fair 
market rent, fair market value or cost of performing under the lease agreement must be 
determined with reference to the facts and circumstances at the time the transaction is 
entered into. 
Official Comments 
(This section is § 1-203 of Revision of Uniform Commercial Code, Article 1 -
General Provisions (2001).) 
Source: Former Section 1-201(37). 
Changes from former law: This section is substantively identical to those portions 
of former Section 1-201 (37) that distinguished "true" leases from security interests, 
except that the definition of "present value" formerly embedded in Section 1-201 (37) has 
been placed in Section 1-201(28). 
1. An interest in personal property or fixtures which secures payment or performance 
of an obligation is a "security interest." See Section 1-201(37). Security interests are 
sometimes created by transactions in the form of leases. Because it can be difficult to 
distinguish leases that create security interests from those that do not, this section 
provides rules that govern the determination of whether a transaction in the form of a 
lease creates a security interest. 
2. One of the reasons it was decided to codify the law with respect to leases was to 
resolve an issue that created considerable confusion in the courts: what is a lease? The 
confusion existed, in part, due to the last two sentences of the definition of security 
interest in the 1978 Official Text of the Act, Section 1-201 (37). The confusion was 
compounded by the rather considerable change in the federal, state and local tax laws and 
accounting rules as they relate to leases of goods. The answer is important because the 
definition of lease determines not only the rights and remedies of the parties to the lease 
but also those of third parties. If a transaction creates a lease and not a security interest, 
the lessee's interest in the goods is limited to its leasehold estate; the residual interest in 
the goods belongs to the lessor. This has significant implications to the lessee's creditors. 
"On common law theory, the lessor, since he has not parted with title, is entitled to full 
protection against the lessee's creditors and trustee in bankruptcy. .. " 1 G. Gilmore, 
Security Interests in Personal Property Section 3.6, at 76 (1965). 
Under pre-UCC chattel security law there was generally no requirement that the 
lessor file the lease, a financing statement, or the like, to enforce the lease agreement 
against the lessee or any third party; the Article on Secured Transactions (Article 9) did 
not change the common law in that respect. 
Coogan, Leasing and the Uniform 
Commercial Code, in Equipment Leasing-Leveraged Leasing 681, 700 n.25, 729 n.80 
(2d ed.1980). The Article on Leases (Article 2A) did not change the law in that respect, 
except for leases of fixtures. Section 2A-309. An examination of the common law will 
not provide an adequate answer to the question of what is a lease. The definition of 
security interest in Section 1-201(37) of the 1978 Official Text of the Act provided that 
the Article on Secured Transactions (Article 9) governs security interests disguised as 
leases, i.e., leases intended as security; 
however, the definition became vague and 
outmoded. 
Lease is defmed in Article 2A as a transfer of the right to possession and use of goods 
for a term, in return for consideration. Section 2A-103(1)G). The definition continues by 
stating that the retention or creation of a security interest is not a lease. Thus, the task of 
sharpening the line between true leases and security interests disguised as leases 
continues to be a function of this Article. 
This section begins where Section 1-201(35) leaves off. It draws a sharper line 
between leases and security interests disguised as leases to create greater certainty in 
commercial transactions. 
Prior to enactment of the rules now codified in this section, the 1978 Official Text of 
Section 1-201(37) provided that whether a lease was intended as security (i.e., a security 
interest disguised as a lease) was to be determined from the facts of each case; however, 
(a) the inclusion of an option to purchase did not itself make the lease one intended for 
security, and (b) an agreement that upon compliance with the terms of the lease the lessee 
would become, or had the option to become, the owner of the property for no additional 
consideration, or for a nominal consideration, did make the lease one intended for 
security. 
Reference to the intent of the parties to create a lease or security interest led to 
unfortunate results. In discovering intent, courts relied upon factors that were thought to 
be more consistent with sales or loans than leases. Most of these criteria, however, were 
as applicable to true leases as to security interests. Examples include the typical net lease 
provisions, a purported lessor's lack of storage facilities or its character as a financing 
party rather than a dealer in goods. Accordingly, this section contains no reference to the 
parties' intent. 
Subsections (a) and (b) were originally taken from Section 1(2) of the Uniform 
Conditional Sales Act (act withdrawn 1943), modified to reflect current leasing practice. 
Thus, reference to the case law prior to the incorporation of those concepts in this article 
will provide a useful source of precedent. Gilmore, Security Law, Formalism and Article 
9, 47 Neb.L.Rev. 659, 671 (1968). Whether a transaction creates a lease or a security 
interest continues to be determined by the facts of each case. Subsection (b) further 
provides that a transaction creates a security interest if the lessee has an obligation to 
continue paying consideration for the term of the lease, if the obligation is not terminable 
by the lessee (thus correcting early statutory gloss, e.g., In re Royer's Bakery, Inc., 1 
U.C.C. Rep.Serv. (Callaghan) 342 (Bankr.E.D.Pa.1963)) and if one of four additional 
tests is met. The first of these four tests, subparagraph (1), is that the original lease term 
is equal to or greater than the remaining economic life of the goods. The second of these 
tests, subparagraph (2), is that the lessee is either bound to renew the lease for the 
remaining economic life of the goods or to become the owner of the goods. In re Gehrke 
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v 
Enters., 1 Bankr. 647, 651-52 (Bankr.W.D.Wis.l979). 
The third of these tests, 
subparagraph (3), is whether the lessee has an option to renew the lease for the remaining 
economic life of the goods for no additional consideration or for nominal additional 
consideration, which is defined later in this section. In re Celeryvale Transp., 44 Bankr. 
1007, 1014-15 (Bankr.E.D.Tenn.1984). The fourth of these tests, subparagraph (4), is 
whether the lessee has an option to become the owner of the goods for no additional 
consideration or for riominal additional consideration. 
All of these tests focus on 
economics, not the intent of the parties. 
In re Berge, 32 Bankr. 370, 371-73 
(Bankr.W.D.Wis.l983). 
The focus on economics is reinforced by subsection (c). It states that a transaction 
does not create a security interest merely because the transaction has certain 
characteristics listed therein. Subparagraph (1) has no statutory derivative; it states that a 
full payout lease does not per se create a security interest. Rushton v. Shea, 419 F.Supp. 
1349, 1365 (D.Del.1976). Subparagraphs (2) and (3) provide the same regarding the 
provisions of the typical net lease. Compare All-States Leasing Co. v. Ochs, 42 Or.App. 
319, 600 P.2d 899 (Ct.App.l979), with In re Tillery, 571 F.2d 1361 (5th Cir.1978). 
Subparagraph (4) restates and expands the provisions of the 1978 Official Text of Section 
1-201(37) to make clear that the option can be to buy or renew. Subparagraphs (5) and 
(6) treat fixed price options and provide that fair market value must be determined at the 
time the transaction is entered into. Compare Arnold Mach. Co. v. Balls, 624 P.2d 678 
(Utah 1981), with Aoki v. Shepherd Mach. Co., 665 F.2d 941 (9th Cir.1982). 
The relationship of subsection (b) to subsection ( c) deserves to be explored. The 
fixed price purchase option provides a useful example. A fixed price purchase option in a 
lease does not of itself create a security interest. This is particularly true if the fixed price 
is equal to or greater than the reasonably predictable fair market value of the goods at the 
time the option is to be perfonned. A security interest is created only if the option price 
is nominal and the conditions stated in the introduction to the second paragraph of this 
subsection are met. There is a set of purchase options whose fixed price is less than fair 
market value but greater than nominal that must be determined on the facts of each case 
. 30 
to ascertain whether the transaction in which the option is included creates a lease or a 
security interest. 
It was possible to provide for various other pennutations and combinations with 
respect to options to purchase and renew. For example, this section could have stated a 
rule to govern the facts of In re Marhoefer Pac!dng Co., 674 F.2d 1139 (7th Cir.1982). 
This was not done because it would unnecessarily complicate the definition. Further 
development of this rule is left to the courts. 
Subsections (d) and ( e) provide definitions and rules of construction. 
§1-1204. Value 
Except as otherwise provided in Articles 3-A, 4 and 5-A, a person gives value for 
rights if the person acquires them: 
(1). In return for a binding commitment to extend credit or for the extension of 
immediately available credit, whether or not drawn upon and whether or not a charge-
back is provided for in the event of difficulties in collection; 
(2). As security for, or in total or partial satisfaction of, a preexisting claim; 
(3). By accepting delivery under a preexisting contract for purchase; or 
(4). In return for any consideration sufficient to support a simple contract. 
Official Comments 
(This section is § 1-204 of Revision of Uniform Commercial Code, Article 1 -
General Provisions (2001).) 
Source: Former Section 1-201(44). 
Changes from former law: Unchanged from former Section 1-201, which was 
derived from Sections 25, 26, 27, 191, Uniform Negotiable Instruments Law; Section 76, 
Uniform Sales Act; Section 53, Uniform Bills of Lading Act; Section 58, Uniform 
Warehouse Receipts Act; 
Section 22(1), Uniform Stock Transfer Act; 
Section 1, 
Uniform Trust Receipts Act. 
These provisions are substantive rather than purely 
deflnitional. Accordingly, they have been relocated from former Section 1-201 to this 
section. 
. 
1. All the Uniform Acts in the commercial law fleld (except the Uniform Conditional 
Sales Act) have carried deflnitions of "value." All those definitions provided that value 
was any consideration sufficient to support a simple contract, including the taking of 
property in satisfaction of or as security for a pre-existing claim. Subsections (1), (2), and 
(4) in substance continue the deflnitions of "value" in the earlier acts. Subsection (3) 
makes explicit that "value" is also given in a third situation: where a buyer by taking 
delivery under a pre-existing contract converts a contingent into a flxed obligation. 
This deflnition is not applicable to Articles 3 and 4, but the express inclusion of 
immediately available credit as value follows the separate deflnitions in those Articles. 
See Sections 4-208, 4-209, 3-303. A bank or other fmancing agency which in good faith 
makes advances against property held as collateral becomes a bona flde purchaser of that 
property even though provision may be made for charge-back in case of trouble. 
Checking credit is "immediately available" within the meaning of this section if the bank 
would be subject to an action for slander of credit in case checks drawn against the credit 
were dishonored, and when a charge-back is not discretionary with the bank, but may 
only be made when difflculties in collection arise in connection with the specific 
transaction involved. 
§1-120S. Reasonable time; seasonableness 
(1). Whether a time for taking an action required by the Uniform Commercial Code 
is reasonable depends on the nature, purpose and circumstances of the action. 
(2). An action is taken seasonably if it is taken at or within the time agreed or, if no 
time is agreed, at or within a reasonable time. 
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Official Comments 
(This section is §1-205 of Revision of Uniform Commercial Code, Article 1 -
General Provisions (2001).) 
Source: Former Section 1-204(2)-(3). 
Changes from former law: This section is derived from subsections (2) and (3) of 
former Section 1-204. Subsection (1) of that section is now incorporated in Section 
1-302(b). 
1. Subsection (a) makes it clear that requirements that actions be taken within a 
"reasonable" time are to be applied in the transactional context of the particular action. 
2. Under subsection (b), the agreement that fixes the time need not be part of the 
main agreement, but may occur separately. Notice also that under the definition of 
"agreement" (Section 1-201) the circumstances of the transaction, including course of 
dealing or usages of trade or course of performance may be material. On the question 
what is a reasonable time these matters will often be important. 
§1-1206. Presumptions 
Whenever the Uniform Commercial Code creates a "presumption" with respect to a 
fact, or provides that a fact is "presumed," the trier of fact must rmd the existence of the 
fact unless and until evidence is introduced that supports a rmding of its nonexistence. 
Official Comments 
(This section is § 1-206 of Revision of Uniform Commercial Code, Article 1 -
General Provisions (2001).) 
Source: Former Section 1-201(31). 
Changes from former law. None, other than stylistic changes. 
1. 
Several sections of the Uniform Commercial Code state that there is a 
"presumption" as to a certain fact, or that the fact is "presumed." This section, derived 
from the definition appearing in former Section 1-201 (31), indicates the effect of those 
provisions on the proof process. 
PART 3 
TERRITORIAL APPLICABILITY AND GENERAL RULES 
§1-1301. Territorial applicability; parties' power to choose applicable law 
(1). 
Except as otherwise provided 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. 
(2). In the absence of an agreement effective under subsection (1) and except as 
provided in subsection (3) the Uniform Commercial Code applies to transactions bearing 
an appropriate relation to this State. 
(3). If one of the following provisions of the Uniform Commercial Code specifies the 
applicable law that provision governs and a contrary agreement is effective only to the 
extent permitted by the law so specified: 
(a). Section 2-402; 
(b). Sections 2-1105 and 2-1106; 
(c). Section4-102; 
(d). Section 4-1507; 
(e). Section 5-1116; 
(f). Section 8-1110; and 
(g). Sections 9-1301 to 9-1307. 
Official Comment 
(This section is §1-301 of Revision of Uniform Commercial Code, Article 1 -
General Provisions (20.01), as amended in 2008.) 
Source: Former Section 1-105. 
Changes from former law: This section is substantively identical to former Section 
1-105. Changes in language are stylistic only. 
1. 
Subsection (a) states affirmatively the right of the parties to a multi-state 
transaction oor a transaction involving foreign trade to choose their oen law. That right is 
subject to the firm rules stated in sections listed in subsection (c), and is limited to 
jurisdictions to which the transaction bears a "reasonable relation." In general, the test of 
"reasonable relation" is similar to that laid down by the Supreme Court in Seeman v. 
Philadelphia Warehouse Co., 274 U.S. 403, 47 S.Ct. 626, 71 L.Ed. 1123 (1927). 
Ordinarily the law chosen must be that of a jurisdiction where a significant enough 
portion of the making or performance of thee contract is to occur or occurs. But an 
agreement as to choice oflaw may sometimes take effect a sa shorthand expression of the 
intent of the parties as to matters governed by their agreement, even though the 
transaction has no significant contact with the jurisdiction chosen. 
2. Where there is no agreement as to the governing law, the Act is applicable to any 
transaction having an "appropriate" relation to any state which enacts it. Of course, the 
Act applies to any transaction which takes place in its entirety in a state which has 
enacted the Act. But the mere fact that suit is brought in a state does not make it 
appropriate to apply the substantive law of that state. Cases where a relation to the 
enacting state is not "appropriate" include, for example, those where the parties have 
clearly contracted on the basis of some other law, as where the law of the place of 
contracting and the law of the place of contemplated performance are the same and are 
contrary to the law under the Code. 
) 
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3. Where a transaction has significant contacts with a state which has enacted the Act 
and also with other jurisdictions, the question what relation is "appropriate" is left to 
judicial decision. In deciding that questions, the court is not strictly bound by precedents 
established in other contexts. Thus a conflict-of-Iaws decision refusing to apply a purely 
local statute of rule of law to a particular multi-state transaction may not be valid 
precedent for refusal to apply the Code in an analogous situation. Application of the 
Code in such circumstances may be justified by its comprehensiveness, by the policy of 
unifonnity, and by the fact that it is large part a reformulation and restatement of the law 
merchant and of the understanding of a business community which transcends state and 
even national boundaries. Compare Global Commerce Corp. v. Clark-Babbitt Industries, 
Inc., 239 F.2d 716, 719 (2d Cir. 1956). In particular, where a transaction is governed in 
large part by the Code, application of another law to some detail of performance because 
of an accident or geography may violate the commercial understanding ofthe parties. 
4. Subsection (c) spells out essential limitations on the parties' right to choose the 
applicable law. Especially in Article 9 parties taking a security interest or asked to extend 
credit which may be subject to a security interest must have sure ways to find out whether 
and where to file and where to look for possible existing filings. 
5. Sections 9-301 through 9-307 should be consulted as to the rules for perfection of 
security interests and agricultural liens and the effect of perfection and nonperfection and 
priority. 
6. This section is subject to Section 1-102, which states the scope of Article 1. As 
that section indiciations, the rules of Article 1, including this section, apply to a 
transaction to the extent that transaction is governed by one of the other Articles of the 
Unifonn Commercial Code. 
§1-1302. Variation by agreement 
(1). Except as otherwise provided in subsection (2) or elsewhere in the Uniform 
Commercial Code, the effect of provisions of the Uniform Commercial Code may be 
varied by agreement. 
(2). The obligations of good faith, diligence, reasonableness and care prescribed by 
the Uniform Commercial Code may not be disclaimed by agreement. The parties, by 
agreement, may determine the standards by which the performance of those obligations is 
to be measured if those standards are not manifestly unreasonable. Whenever the 
Unifonn Commercial Code requires an action to be taken within a reasonable time, a time 
that is not manifestly unreasonable may be fixed by agreement. 
(3). The presence in certain provisions of the Uniform Commercial Code of the 
phrase "unless otherwise agreed," or words of similar import, does not imply that the 
effect of other provisions may not be varied by agreement under this section. 
Official Comments 
(This section is §1-302 of Revision of Uniform Commercial Code, Article 1 -
General Provisions (2001).) 
Source: Former Sections 1-102(3)-(4) and 1-204(1). 
Changes: This section combines the rules from subsections (3) and (4) of former 
Section 1-102 and subsection (1) of former Section 1-204. No substantive changes are 
made. 
1. Subsection (a) states affirmatively at the outset that freedom of contract is a 
principle of the Uniform Commercial Code: "the effect" of its provisions may be varied 
by "agreement." The meaning of the statute itself must be found in its text, including its 
definitions, and in appropriate extrinsic aids; it cannot be varied by agreement. But the 
Uniform Commercial Code seeks to avoid the type of interference with evolutionary 
growth found in pre-Code cases such as Manhattan Co. v. Morgan, 242 N.Y. 38, 150 
N.B. 594 (1926). Thus, private parties cannot make an instrument negotiable within the 
meaning of Article 3 except as provided in Section 3-104; nor can they change the 
meaning of such terms as "bona fide purchaser," "holder in due course," or "due 
negotiation," as used in the Uniform Commercial Code. But an agreement can change 
the legal consequences that would otherwise flow from the provisions of the Uniform 
Commercial Code. "Agreement" here includes the effect given to course of dealing, 
usage of trade and course of performance by Sections 1-201 and 1-303; the effect of an 
agreement on the rights of third parties is left to specific provisions of the Uniform 
Commercial Code and to supplementary principles applicable under Section 1-103. The 
rights of third parties under Section 9-317 when a security interest is unperfected, for 
example, cannot be destroyed by a clause in the security agreement. 
This principle of freedom of contract is subj ect to specific exceptions found 
elsewhere in the Uniform Commercial Code and to the general exception stated here. 
The specific exceptions vary in explicitness: the statute of frauds found in Section 2-201, 
for example, does not explicitly preclude oral waiver of the requirement of a writing, but 
a fair reading denies enforcement to such a waiver as part of the "contract" made 
unenforceable; Section 9-602, on the other hand, is a quite explicit limitation on freedom 
of contract. 
Under the exception for "the obligations of good faith, diligence, 
reasonableness and care prescribed by [the Uniform Commercial Code]," provisions of 
the Uniform Commercial Code prescribing such obligations are not to be disclaimed. 
However, the section also recognizes the prevailing practice of having agreements set 
forth standards by which due diligence is measured and explicitly provides that, in the 
absence of a showing that the standards manifestly are unreasonable, the agreement 
controls. ill this connection, Section 1-303 incorporating into the agreement prior course 
of dealing and usages of trade is of particular importance. 
Subsection (b) also recognizes that nothing is stronger evidence of a reasonable time 
than the fixing of such time by a fair agreement between the parties. However, provision 
is made for disregarding a clause which whether by inadvertence or overreaching fixes a 
time so unreasonable that it amounts to eliminating all remedy under the contract. The 
parties are not required to fix the most reasonable time but may fix any time which is not 
obviously unfair as judged by the time of contracting. 
2. An agreement that varies the effect of provisions of the Uniform Commercial 
Code may do so by stating the rules that will govern in lieu of the provisions varied. 
Alternatively, the parties may vary the effect of such provisions by stating that their 
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relationship will be governed by recognized bodies of rules or principles applicable to 
commercial transactions. Such bodies of rules or principles may include, for example, 
those that are promulgated by intergovernmental authorities such as UNCITRAL or 
Unidroit (see, e.g., Unidroit Principles of International Commercial Contracts), or non-
legal codes such as trade codes. 
3. Subsection (c) is intended to make it clear that, as a matter of drafting, phrases 
such as "unless otherwise agreed" have been used to avoid controversy as to whether the 
subject matter of a particular section does or does not fall within the exceptions to 
subsection (b), but absence of such words contains no negative implication since under 
subsection (b) the general and residual rule is that the effect of all provisions of the 
Uniform Commercial Code may be varied by agreement. 
§1-1303. Course of performance, course of dealing and usage oftrade 
(1). A "course of performance" is a sequence of conduct between the parties to a 
particular transaction that exists if: 
(a). The agreement of the parties with respect to the transaction involves repeated 
occasions for performance by a party; and 
(b). 
The other party, with lmowledge of the nature of the performance and 
opportunity for objection to it, accepts the performance or acquiesces in it without 
objection. 
(2). A "course of dealing" is a sequence of conduct concerning previous transactions 
between the parties to a particular transaction that is fairly to be regarded as establishing a 
common basis of understanding for interpreting their expressions and other conduct. 
(3). A "usage of trade" is any practice or method of dealing having such regularity of 
observance in a place, vocation or trade as to justify an expectation that it will be 
observed with respect to the transaction in question. The existence and scope of such a 
usage must be proved as facts. If it is established that such a usage is embodied in a trade 
code or similar record, the interpretation of the record is a question of law. 
(4). A course of performance or course of dealing between the parties or usage of 
trade in the vocation or trade in which they are engaged or of which they are or should be 
aware is relevant in ascertaining the meaning of the parties' agreement, may give 
particular meaning to specific terms of the agreement and may supplement or qualify the 
terms of the agreement. A usage of trade applicable in the place in which part of the 
performance under the agreement is to occur may be so utilized as to that part of the 
performance. 
(5). 
Except as otherwise provided in subsection (6), the express terms of an 
agreement and any applicable course of performance, course of dealing or usage of trade 
must be construed whenever reasonable as consistent with each other. 
If such a 
construction is unreasonable: 
(a). Express terms prevail over course of performance, course of dealing and usage 
of trade; 
(b). Course ofperfonnance prevails over course of dealing and usage of trade; and 
(c). Course of dealing prevails over usage of trade. 
(6). Subject to section 2-209, a course ofperfonnance is relevant to show a waiver or 
modification of any term inconsistent with the course of performance. 
(7). Evidence of a relevant usage of trade offered by one party is not admissible 
unless that party has given the other party notice that the court fmds sufficient to prevent 
unfair surprise to the other party. 
Official Comments 
(This section is § 1-303 of Revision of Uniform Commercial Code, Article 1 -
General Provisions (2001).) 
Source: Former Sections 1-205,2-208, and Section 2A-207. 
Changes from former law: This section integrates the "course of performance" 
concept from Articles 2 and 2A into the principles of former Section 1-205, which deals 
with course of dealing and usage of trade. In so doing, the section slightly modifies the 
articulation of the course of performance rules to fit more comfortably with the approach 
and structure of former Section 1-205. There are also slight modifications to be more 
consistent with the defmition of "agreement" in former Section 1-201(3). It should be 
noted that a course of performance that might otherwise establish a defense to the 
obligation of a party to a negotiable instrument is not available as a defense against a. 
holder in due course who took the instrument without notice of that course of 
performance. 
1. 
The Uniform Commercial Code rejects both the "lay-dictionary" and the 
"conveyancer's" reading of a commercial agreement. 
Instead the meaning of the 
agreement of the parties is to be determined by the language used by them and by their 
action, read and interpreted in the light of commercial practices and other surrounding 
circumstances. The measure and background for interpretation are set by the commercial 
context, which may explain and supplement even the language of a formal or final 
writing. 
2. "Course of dealing," as defined in subsection (b), is restricted, literally, to a 
sequence of conduct between the parties previous to the agreement. A sequence of 
conduct after or under the agreement, however, is a "course of performance." "Course of 
dealing" may enter the agreement either by explicit provisions of the agreement or by 
tacit recognition. 
3. The Uniform Commercial Code deals with "usage of trade" as a factor in reaching 
the commercial meaning of the agreement that the parties have made. The language used 
is to be interpreted as meaning what it may fairly be expected to mean to parties involved 
7 
in the particular commercial transaction in a given locality or in a given vocation ortr:ade. 
By adopting in this context the term "usage of trade," the Uniform Commercial CO'de; 
expresses its intent to reject those cases which see evidence of "custom" as representing 
an effort to displace or negate "established rules of law." A distinction is to be drawn 
between mandatory rules of law such as the Statute of Frauds provisions of Article 2 on 
) 
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Sales whose very office is to control and restrict the actions of the parties, and which 
cannot be abrogated by agreement, or by a usage of trade, and those rules of law (such as 
those in Part 3 of Article 2 on Sales) which fill in points which the parties have not 
considered and in fact agreed upon. The latter rules hold "unless otherwise agreed" but 
yield to the contrary agreement of the parties. Part of the agreement of the parties to 
which such rules yield is to be sought for in the usages of trade which furnish the 
background and give particular meaning to the language used, and are the framework of 
common understanding controlling any general rules of law which hold only when there 
is no such understanding. 
4. A usage of trade under subsection (c) must have the "regularity of observance" 
specified. The ancient English tests for "custom" are abandoned in this connection. 
Therefore, it is not required L~at a usage of trade be "ancient or immemorial," 
"universal," or the like. Under the requirement of subsection (c) full recognition is thus 
available for new usages and for usages currently observed by the great majority of 
decent dealers, even though dissidents ready to cut corners do not agree. There is room 
also for proper recognition of usage agreed upon by merchants in trade codes. 
5. The policies of the Uniform Commercial Code controlling explicit unconscionable 
contracts and clauses (Sections 1-304, 2-302) apply to implicit clauses that rest on usage 
of trade and carry forward the policy underlying the ancient requirement that a custom or 
usage must be "reasonable." 
However, the emphasis is shifted. 
The very fact of 
commercial acceptance makes out a prima facie case that the usage is reasonable, and the 
burden is no longer on the usage to establish itself as being reasonable. But the anciently 
established policing of usage by the courts is continued to the extent necessary to cope 
with the situation arising if an unconscionable or dishonest practice should become 
standard. 
6. Subsection (d), giving the prescribed effect to usages of which the parties "are or 
should be aware," reinforces the provision of subsection (c) requiring not universality but 
only the described "regularity of observance" of the practice or method. This subsection 
also reinforces the point of subsection (c) that such usages may be either general to trade 
or particular to a special branch of trade. 
7. Although the definition of "agreement" in Section 1-201 includes the elements of 
course of performance, course of dealing, and usage of trade, the fact that express 
reference is made in some sections to those elements is not to be construed as carrying a 
contrary intent or implication elsewhere. Compare Section 1-302(c). 
8. In cases of a well established line of usage varying from the general rules of the 
Uniform Commercial Code where the precise amount of the variation has not been 
worked out into a single standard, the party relying on the usage is entitled, in any event, 
to the minimum variation demonstrated. The whole is not to be disregarded because no 
particular line of detail has been established. In case a dominant pattern has been fairly 
evidenced, the party relying on the usage is entitled under this section to go to the trier of 
fact on the question of whether such dominant pattern has been incorporated into the 
agreement. 
9. Subsection (g) is intended to insure that this Act's liberal recognition of the needs 
of commerce in regard to usage of trade shall not be made into an instrument of abuse. 
§1-1304. Obligation of good faith 
Every contract or duty within the Uniform Commercial Code imposes an obligation 
of good faith in its performance and enforcement. 
Official Comments 
(This section is § 1-3-4 of Revision of Uniform Commercial Code, Article 1 -
General Provisions (2001).) 
Source: Former Section 1-203. 
Changes from former law: 
Except for changing the form of reference to the 
Uniform Commercial Code, this section is identical to former Section 1-203. 
1. 
This section sets forth a basic principle . running throughout the Uniform 
Commercial Code. The principle is that in commercial transactions good faith is required 
in the performance and enforcement of all agreements or duties. While this duty is 
explicitly stated in some provisions of the Uniform Commercial Code, the applicability of 
the duty is broader than merely these situations and applies generally, as stated in this 
section, to the performance or enforcement of every contract or duty within this Act. It is 
further implemented by Section 1-303 on course of dealing, course of performance, and 
usage of trade. This section does not support an independent cause of action for failure to 
perform or enforce in good faith. Rather, this section means that a failure to perform or 
enforce, in good faith, a specific duty or obligation under the contract, constitutes a 
breach of that contract or makes unavailable, under the particular circumstances, a 
remedial right or power. This distinction makes it clear that the doctrine of good faith 
merely directs a court towards interpreting contracts within the commercial context in 
which they are created, performed, and enforced, and does not create a separate duty of 
fairness and reasonableness which can be independently breached. 
2. 
"Performance and enforcement" of contracts and duties within the Uniform 
Commercial Code include the exercise of rights created by the Uniform Commercial 
Code. 
§1-130S. Remedies to be liberally administered 
(1). The remedies provided by the Uniform Commercial Code must be liberally 
administered to the end that the aggrieved party may be put in as good a position as if the 
other party had fully performed but neither consequential or special damages nor penal 
damages may be had except as specifically provided in the Uniform Commercial Code or 
by other rule of law. 
(2). 
Any right or obligation declared by the Uniform Commercial Code is 
enforceable by action unless the provision declaring it specifies a different and limited 
effect. 
Official Comments 
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(1bis section is § 1-305 of Revision of Uniform Commercial Code, Article 1 -
General Provisions (2001).) 
Source: Former Section 1-106. 
Changes from former law: Other than changes in the form of reference to the 
Uniform Commercial Code, this section is identical to former Section 1-106. 
1. Subsection (a) is intended to effect three propositions. The first is to negate the 
possibility of unduly narrow or technical interpretation of remedial provisions by 
providing that the remedies in the Uniform Commercial Code are to be liberally 
administered to the end stated in this section. The second is to make it clear that 
compensatory damages are limited to compensation. They do not include consequential 
or special damages, or penal damages; and the Uniform Commercial Code elsewhere 
makes it clear that damages must be minimized. Cf. Sections 1-304, 2-706(1), and 2-
712(2). The third purpose of subsection (a) is to reject any doctrine that damages must be 
calculable with mathematical accuracy. 
Compensatory damages are often at best 
approximate: they have to be proved with whatever definiteness and accuracy the facts 
permit, but no more. Cf. Section 2-204(3). 
2. 
Under subsection (b), any right or obligation described in the Uniform 
Commercial Code is enforceable by action, even though no remedy may be expressly 
provided, unless a particular provision specifies a different and limited effect. Whether 
specific performance or other equitable relief is available is determined not by this 
section but by specific provisions and by supplementary principles. Cf. Sections 1-103, 
2-716. 
3. "Consequential" or "special" damages and "penal" damages are not defined in the 
Uniform Commercial Code; rather, these terms are used in the sense in which they are 
used outside the Uniform Commercial Code. 
§1-1306. Waiver or renunciation of claim or right after breach 
A claim or right arising out of an alleged breach may be discharged in whole or in 
part without consideration by agreement of the aggrieved party in an authenticated 
record. 
Official Comments 
(This section is §1-306 of Revision of Uniform Commercial Code, Article 1 -
General Provisions (2001).) 
Source: Former Section 1-107. 
Changes from former law: This section changes former law in two respects. First, 
former Section 1-107, requiring the "delivery" of a "written waiver or renunciation" 
merges the separate concepts of the aggrieved party's agreement to forego rights and the 
manifestation of that agreement. This section separates those concepts, and explicitly 
requires agreement of the aggrieved party. 
Second, the revised section reflects 
developments in electronic commerce by providing for memorialization in an 
authenticated record. In this context, a party may "authenticate" a record by (i) signing a 
record that is a writing or (ii) attaching to or logically associating with a record that is not 
a writing an electronic sound, symbol or process with the present intent to adopt or accept 
the record. See Sections 1-201 (b)(37) and 9-102(a)(7). 
1. This section makes consideration unnecessary to the effective renunciation or 
waiver of rights or claims arising out of an alleged breach of a commercial contract where 
the agreement effecting such renunciation is memorialized in a record authenticated by 
the aggrieved party. Its provisions, however, must be read in conjunction with the section 
imposing an obligation of good faith. (Section 1-304). 
§1-1307. Prima facie evidence by 3rd-party documents 
A document in due form purporting to be a bill of lading, policy or certificate of 
insurance, official weigher's or inspector's certificate, consular invoice or any other 
document authorized or required by the contract to be issued by a 3rd party is prima facie 
evidence of its own authenticity and genuineness and of the facts stated in the document 
by the 3rd party. 
Official Comments 
(This section is §1-307 of Revision of Uniform Commercial Code, Article 1 -
General Provisions (2001).) 
Source: Former Section 1-202. 
Changes from former law: Except for minor stylistic changes, this Section is 
identical to former Section 1-202. 
1. This section supplies judicial recognition for documents that are relied upon as 
trustworthy by commercial parties. 
2. This section is concerned only with documents that have been given a preferred 
status by the parties themselves who have required their procurement in the agreement, 
and for this reason the applicability of the section is limited to actions arising out of the 
contract that authorized or required the document. The list of documents is intended to be 
illustrative and not exclusive. 
3. The provisions of this section go no further than establishing the documents in 
question as prima facie evidence and leave to the court the ultimate determination of the 
facts where the accuracy or authenticity of the documents is questioned. 
In this 
connection the section calls for a commercially reasonable interpretation. 
4. Documents governed by this section need not be writings if records in another 
medium are generally relied upon in the context. 
§1-130S. Performance or acceptance under reservation of rights 
(1). A party that with explicit reservation of rights performs or promises performance 
or assents to performance in a manner demanded or offered by the other party does not 
.thereby prejudice the rights reserved. Such words as "without prejudice," "under protest" 
or the like are sufficient. 
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(2). Subsection (1) does not apply to an accord and satisfaction. 
Official Comments 
(This section is § 1-308 of Revision of Unifonn Commercial Code, Article 1 
General Provisions (2001).) 
Source: Fonner Section 1-207. 
Changes from former law: This section is identical to fonner Section 1-207. 
1. This section provides machinery for the continuation of performance along the 
lines contemplated by the contract despite a pending dispute, by adopting the mercantile 
device of going ahead with delivery, acceptance, or payment "without prejudice," "under 
protest," "under reserve," "with reservation of all our rights," and the like. All ofthese 
phrases completely reserve all rights within the meaning of tIus section. The section 
therefore contemplates that limited as well as general reservations and acceptance by a 
party may be made "subject to satisfaction of our purchaser," "subject to acceptance by 
our customers," or the like. 
2. This section does not add any new requirement of language of reservation where 
not already required by law, but merely provides a specific measure on which a party can 
rely as that party makes or concurs in any interim adjustment in the course of 
perfonnance. It does not affect or impair the provisions of this Act such as those under 
which the buyer's remedies for defect survive acceptance without being expressly 
claimed if notice of the defects is given within a reasonable time. Nor does it disturb the 
policy of those cases which restrict the effect of a waiver of a defect to reasonable limits 
under the circumstances, even though no such reservation is expressed. 
The section is not addressed to the creation or loss of remedies in the ordinary course 
of perfonnance but rather to a method of procedure where one party is claiming as of 
right something which the other believes to be unwarranted. 
3. Subsection (b 5 states that this section does not apply to an accord and satisfaction. 
Section 3-311 governs if an accord and satisfaction is attempted by tender of a negotiable 
instrument as stated in that section. If Section 3-311 does not apply, the issue of whether 
an accord and satisfaction has been effected is determined by the law of contract. 
Whether or not Section 3-311 applies, this section has no application to an accord and 
satisfaction. 
§1-1309. Option to accelerate at will 
A tenn providing that one party or that party's successor in interest may accelerate 
payment or perfonnance or require collateral or additional collateral "at will" or when the 
party "deems itself insecUre," or words of similar import, means that the party has power 
to do so only if that party in good faith believes that the prospect of payment or 
perfonnance is impaired. The burden of establishing lack of good faith is on the party 
against which the power has been exercised. 
Official Comments 
(This section is §1-309 of Revision of Uniform Commercial Code, Article 1 -
General Provisions (2001).) 
Source: Former Section 1-208. 
Changes from former law: Except for minor stylistic changes, this section IS 
identical to former Section 1-208. 
1. The common use of acceleration clauses in many transactions governed by the 
Uniform Commercial Code, including sales of goods on credit, notes payable at a defInite 
time, and secured transactions, raises an issue as to the effect to be given to a clause that 
seemingly grants the power to accelerate at the whim and caprice of one party. This 
section is intended to make clear that despite language that might be so construed and 
which further might be held to make the agreement void as against public policy or to 
make the contract illusory or too indefInite for enforcement, the option is to be exercised 
only in the good faith belief that the prospect of payment or performance is impaired. 
Obviously this section has no application to demand instruments or obligations whose 
very nature permits call at any time with or without reason. This section applies only to 
an obligation of payment or performance which in the fIrst instance is due at a future 
date. 
§ 1-131 O. Subordinated obligations 
An obligation may be issued as subordinated to performance of another obligation of 
the person obligated, or a creditor may subordinate its right to performance of an 
obligation by agreement with either the person obligated or another creditor of the person 
obligated. Subordination does not create a security interest as against either the common 
debtor or a subordinated creditor. 
Official Comments 
(This section is §1-310 of Revision of Uniform Commercial Code, Article 1 -
General Provisions (2001).) 
Source: Former Section 1-209. 
Changes from former law: This section is substantively identical to former Section 
1-209. The language in that section stating that it "shall be construed as declaring the law 
as it existed prior to the enactment of this section and not as modifying it" has been 
deleted. 
1. Billions of dollars of subordinated debt are held by the public and by institutional 
investors. Commonly, the subordinated debt is subordinated on issue or acquisition and 
is evidenced by an investment security or by a negotiable or non-negotiable note. Debt is 
also sometimes subordinated after it arises, either by agreement between the 
subordinating creditor and the debtor, by agreement between two creditors of the same 
debtor, or by agreement of all three parties. 
The subordinated creditor may be a 
stockholder or other "insider" interested in the common debtor; the subordinated debt 
may consist of accounts or other rights to payment not evidenced by any instrument. All 
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such cases are included in the terms "subordinated obligation," "subordination," and 
"subordinated creditor." 
2. Subordination agreements are enforceable between the parties as contracts; and in 
the bankruptcy of the common debtor dividends otherwise payable to the subordinated 
creditor are turned over to the superior creditor. 
This "turn-over" practice has on 
occasion been explained in terms of "equitable lien," "equitable assignment," or 
"constructive trust," but whatever the label the practice is essentially an equitable remedy 
and does not mean that there is a transaction "that creates a security interest in personal 
property ... by contract" or a "sale of accounts, chattel paper, payment intangibles, or 
promissory notes" within the meaning of Section 9-109. On the other hand, nothing in 
this section prevents one creditor from assigning his rights to another creditor of the same 
debtor i,l such a way as to create a secmity interest withi'l Article 9, where the pru.-ties so 
intend. 
3. The enforcement of subordination agreements is largely left to supplementary 
principles under Section 1-103. If the subordinated debt is evidenced by a certificated 
security, Section 8-202(a) authorizes enforcement against purchasers on terms stated or 
referred to on the security certificate. If the fact of subordination is noted on a negotiable 
instrument, a holder under Sections 3-302 and 3-306 is subject to the tenn because notice 
precludes him from taking free of the subordination. Sections 3-302(3)(a), 3-306, and 8-
severely limit the rights of levying creditors of a subordinated creditor in such cases. 
Sec. A-3. Legislative intent. This Act is the Maine enactment of the Uniform 
Commercial Code, Article 1 as revised by the National Conference of Commissioners on 
Unifonn State Laws. ·The text of the uniform act has been changed to conform to Maine 
statutory conventions and the Article is enacted as Article I-A. The changes are technical 
in nature and it is the intent of the Legislature that this Act be interpreted as substantively 
the same as the revised Article 1 of the unifonn act. 
Sec. A-4. Effective date. This Part takes effect January 1, 2010. 
PARTS 
Sec. B-1. 10 MRSA §1286, as enacted by PL 1995, c. 462, Pt. A, §22 and affected 
by §23, is amended to read: 
§1286. Usage of trade 
The terms "utility" and "industrial," when used to refer to equipment, machinery, 
attachments, yard and garden equipment or repair parts, have the meanings commonly 
used and understood among dealers and suppliers of farm equipment as usage of trade in 
accordance with Title 11, section~ 1-1303, subsection~ ill. 
Sec. B-2. 10 MRS A §9403, sub-§2, EUB, as enacted by PL 1999, c. 762, §2, is 
amended to read: 
B. The Uniform Commercial Code other than Title 11, seotions 1 107 and 1 206 
section 1-1306 and Articles 2 and 2A 2-A. 
Sec. B-3. 10 MRSA §9416, sub-§4, as enacted by PL 1999, c. 762, §2, is 
amended to read: 
4. Holders. Except as otherwise agreed, a person having control of a transferable 
record is the holder, as defined in Title 11, section.f.,.;!(H.. 1-1201, subsection ~ 
au, of 
the transferable record and has the same rights and defenses as a holder of an equivalent 
record or writing under the Uniform Commercial Code, including, if the applicable 
statutory requirements under Title 11, section 3-1302, subsection (1); Title 11, section 
7-501; or Title 11, section 9-308 are satisfied, the rights and defenses of a holder in due 
course, a holder to which a negotiable document of title has been duly negotiated or a 
purchaser, respectively. Delivery, possession and indorsement are not required to obtain 
or exercise any of the rights under this subsection. 
Sec. B-4. 11 MJRSA §2-103, sub-§(l), 1IJf(b) is repealed. 
Sec. B-S. 11 MR.SA §2-202, sub-§(l) is amended to read: 
(1). By course of performance, course of dealing or usage of trade (section ~ 
1-1303) or by course of performance (section 2208); and 
Official Comment 
* * * 
Cross References: 
Point3: Sections~, 1-303,2-207,2-302 and 2-316. 
Definitional Cross References: 
"Agreed" and "agreement". Section 1-201. 
"Course of dealing". Section ~ 
1-303. 
"Course of performance". Section 1-303. 
"Partyies". Section 1-201. 
"Term". Section 1-201. 
"Usage of trade". Section~ 1-303. 
"Written" and "writing". Section 1-201. 
Sec. B-6. 11 MJRSA §2-208 is repealed. 
Sec. B-7. 11 MJRSA §2-1103, sub-§(3), as amended by PL 1999, c. 699, Pt. B, 
§ 11 and affected by §28, is further amended to read: 
(3). The following definitions in other Articles apply to this Article: 
"Account." Section 9-1102, subsection (2). 
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"Between merchants." Section 2-104, subsection (3). 
"Buyer." Section 2-103, subsection (1), paragraph (a). 
"Chattel paper." Section 9-1102, subsection (11). 
"Consumer goods." Section 9-1102, subsection (23). 
"Document." Section 9-1102, subsection (30). 
"Entrusting." Section 2-403, subsection (3). 
"General intangible" Section 9-1102, subsection (42). 
"Good faith." Section 2 103. subsection (1). narneauh (b)' 
"LTIstrument." Section 9-1102, subsection (47). 
"Merchant." Section 2-104, subsection (1). 
"Mortgage." Section 9-1102, subsection (55). 
"Pursuant to commitment." Section 9-1102, subsection (60). 
"Receipt." Section 2-103, subsection (1), paragraph (c). 
"Sale." Section 2-106, subsection (1). 
"Sale on approva1." Section 2-326. 
"Sale or return." Section 2-326. 
"Seller." Section 2-103, subsection (1), paragraph (d). 
Official Comment 
(a) "Buyer in ordinary course of business". Section 1-201fhl(9). 
* * * 
(h) "Goods". 
Section 9 105(1)(h) 9-102(a)(44). 
See Section 2A-103(3) for 
reference to the defInition of "Account", "Chattel paper", "Document", "General 
intangibles" and "Instrument". See Section 2A-217 for determination of the time and 
manner of identification. 
* * * 
U) "Lease". New. There are several reasons to codify the law with respect to leases 
of goods. An analysis of the case law as it applies to leases of goods suggests at least 
several significant issues to be resolved by codification. 
First and foremost is the 
defInition of a lease. It is necessary to define lease to determine whether a transaction 
creates a lease or a security interest disguised as a lease. If the transaction creates a 
security interest disguised as a lease, the transaction will be governed by the Article on 
Secured Transactions (Article 9) and the lessor will be required to file a financing 
statement or take other action to perfect its interest in the goods against third parties. 
There is no such requirement with respect to leases under the common law and, except 
with respect to leases of fixtures (Section 2A-309), this Article imposes no such 
requirement. Yet the distinction between a lease and a security interest disguised as a 
lease is not clear from the case law at the time of the promulgation of this Article. 
DeKoven, Leases of Equipment: Puritan Leasing Company v. August, A Dangerous 
Decision, 12 U.S.F. L.Rev. 257 (1978). 
At common law a lease of personal property is a bailment for hire. While there are 
several defInitions of bailment for hire, all require a thing to be let and a price for the 
letting. Thus, in modem terms and as provided in this defInition, a lease is created when 
the lessee agrees to furnish consideration for the right to the possession and use of goods 
over a specifIed period of time. Mooney, Personal Property Leasing: A Challenge, 36 
Bus.Law. 1605, 1607 (1981). Further, a lease is neither a sale (Section 2-106(1)) nor a 
retention or creation of a security interest (Section§. 1-201fJ+)(b)(35) and 1-203). Due to 
extensive litigation to distinguish true leases from security interests, an amendment to 
former Section 1-201(37) (now codifIed as Section 1-203) was has been promulgated 
with this Article to create a sharper distinction. 
This section as well as Section 1 201(37) 1-203 must be examined to determine 
whether the transaction in question creates a lease or a security interest. The following 
hypotheticals indicate the perimeters of the issue. 
Assume that A has purchased a 
number of copying machines, new, for $1,000 each; the machines have an estimated 
useful economic life of three years. A advertises that the machines are available to rent 
for a minimum of one month and that the monthly rental is $100.00. A intends to enter 
into leases where A provides all maintenance, without charge to the lessee. Further, the 
lessee will rent the machine, month to month, with no obligation to renew. At the end of 
the lease term the lessee will be obligated to return the machine to A's place of business. 
This transaction qualifIes as a lease under the fust half of the defInition, for the 
transaction includes a transfer by A to a prospective lessee of possession and use of the 
machine for a stated term, month to month. 
The machines are goods (Section 
2A-103(1)(h)). The lessee is obligated to pay consideration in return, $100.00 for each 
month of the term. 
However, the second half of the defInition provides that a sale or a security interest is 
not a lease. Since there is no passing of title, there is no sale. Sections 2A-103(3) and 
2-106(1). Under pre-Act security law this transaction would have created a bailment for 
hire or a true lease and not a conditional sale. Da Rocha v. Macomber, 330 Mass. 611, 
614-15, 116 N.E.2d 139, 142 (1953). Under Section 1 201(37) 1-203, as amended with 
the promulgation of this Artiole, the same result would follow. 
While the lessee is 
obligated to pay rent for the one month term of the lease, one of the other four conditions 
of the seoond paragraph of Seotion 1 201(37) Section 1-203(b) must be met and none is. 
The term of the lease is one month and the economic life of the machine is 36 months; 
thus, subparagraph (a) of Seotion 1 201(37) Section 1-203(b)(l) is no~ now satisfIed. 
Considering the amount of the monthly rent, absent economic duress or coercion, the 
lessee is not bound either to renew the lease for the remaining economic life of the goods 
or to become the owner. If the lessee did lease the machine for 36 months, the lessee 
would have paid the lessor $3,600 for a machine that could have been purchased for 
$1,000; thus, subparagraph (b) of Seotion 1 201(37) Section 1-203(b)(2) is not satisfIed. 
Finally, there are no options; thus, subparagraphs (61) and (61) of Seotion 1 201(37) 
1-203(b) are not satisfIed. 
This transaction creates a lease, not a security interest. 
However, with each renewal of the lease the facts and circumstances at the time of each 
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renewal must be examined to determine if that conclusion remains accurate, as it is 
possible that a transaction that first creates a lease, later creates a security interest. 
Assume that the facts are changed and that A requires each lessee to lease the goods 
for 36 months, with no right to terminate. Under pre-Act security law this transaction 
. would have created a conditional sale, and not a bailment for hire or true lease. Hervey v. 
Rhode Island Locomotive Works, 93 U.S. 664, 672-73 (1876). Under this subsection, and 
Section 1-203 1 201 (37), as amended with the inolusion of this Artiole in the Aot, the 
same result would follow. 
The lessee's obligation for the term is not subject to 
termination by the lessee and the term is equal to the economic life of the machine. 
Between these extremes there are many transactions that can be created. Some of the 
transactions ha¥e were not been properly categorized by the courts in applying the 1978 
and earlier Official Texts of former Section 1-201(37). This subsection, together with 
Section 1-203 1 201(37), as amended with the promulgation of this Artiole, draws a 
brighter line, which should create a clearer signal to the professional lessor and lessee. 
(k) "Lease agreement". This definition is derived from the first sentenoe of Section 
1-201{hl(3). Because the definition of lease is broad enough to cover future transfers, 
lease agreement includes an agreement contemplating a current or subsequent transfer. 
Thus it was not necessary to make an express reference to an agreement for the future 
lease of goods (Section 2-106(1)). This concept is also incorporated in the definition of 
lease contract. Note that the definition of lease does not include transactions in ordinary 
building materials that are incorporated into an improvement on land. Section 2A-309(2). 
The provisions of this Article, if applicable, determine whether a lease agreement has 
legal consequences; otherwise the law of bailrnents and other applicable law determine 
the same. Sections 2A-103(4) and 1-103. 
(1) "Lease contract". This definition is derived from the definition of contract in 
Section 1-20lf1--1-)(b)(12). Note that a lease contract may be for the future lease of goods, 
since this notion is included in the definition oflease. 
* * * 
(0) "Lessee in ordinary course of business". Section 1-20 1 {hl(9). 
* * * 
(u) Present value". New. Authorities agree that present 'farue should be used to 
determine fairly the damages payable by the lessor or the lessee on default. E.g., Taylor 
". Commercial Grodit Equip. Gorp., 170 Ga.App. 322, 316 S.E.2d 788 (1984). Present 
varue is defmed to mean an amount that represents the disoounted value as of a date 
oertain of one or more sums payable in the future. This is a funotion of the economic 
prinoiple that a dollar today is more valuable to the holder than a dollar payable in hvo 
years. ¥lhile there is no question as to the prinoiple, reasonable people would differ as to 
the rate of disoount to apply in determining the 'filrue of that future dollar today. To 
minimize litigation, this Artiole allo';'ls the parties to speoify the disoount or interest rate, 
if the rate was not manifestly unreasonable at the time the transaotion was entered into. 
ale fate that takes into 
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In all other cases, t e. 
tances of each case, as 0 
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entered into. 
(v) "Purchase". Section 1-201~(b)(29). This deftnition omits the reference to lien 
contained in the deftnition of purchase in Article 1 (Section 1-20 1 ~(b)(29). This 
should not be construed to exclude consensual liens from the deftnition of purchase in 
this Article; the exclusion was mandated by the scope of the deftnition of lien in Section 
2A-I03(1)(r). Further, the deftnition of purchaser in this Article adds a reference to 
lease; as purchase is defmed in Section 1-201~(b)(29) to include any other voluntary 
transaction creating an interest in property, this addition is not substantive. 
* * * 
Sec. B-8. 11 MRSA §2-1207, as enacted byPL 1991, c. 805, §4, is repealed. 
Sec. B-9. 11 MRSA §2-1501, sub-§(4), as enacted by PL 1991, c. 805, §4, is 
amended to read: 
(4). 
Except as otherwise provided in section ~ 
1-1305, subsection (1), this 
Article or the lease agreement, the rights and remedies referred to in subsections (2) and 
(3) are cumulative. 
Official Comment (§2-1501) 
Uniform Statutory Source: Former Section 9-501 (now codifted as Section 9-601). 
* * * 
2. Subsection (2) is a version of the ftrst sentence of Section 9 501(1) 9-601(a), 
revised to reflect leasing terminology. 
3. Subsection (3), an expansive version of the second sentence of Section 9 501(1) 
9-60lCa), lists the procedures that may be followed by the party seeking enforcement; in 
effect, the scope of the procedures listed in subsection (3) is consistent with the scope of 
the procedures available to the foreclosing secured party. 
4. Subsection (4) establishes that the parties' rights and remedies are cumulative. 
DeKoven, Leases of Equipment: Puritan Leasing Company v. August, A Dangerous 
Decision, 12 U.S.F.L.Rev. 257, 276-80 (1978). Cumulation, and largely unrestricted 
selection, of remedies is allowed in furtherance of the general policy of the Commercial 
Code, stated in Section -l--l-Q{; 1-305, that remedies be liberally administered to put the 
aggrieved party in as good a position as if the other party had fully performed. Therefore, 
cumulation of, or selection among, remedies is available to the extent necessary to put the 
aggrieved party in as good a position as it would have been in had there been full 
performance. However, cumulation of, .or selection among, remedies is not available to 
the extent that the cumulation or selection would put the aggrieved party in a better 
position than it would have been in had there been full performance by the other party. 
5. Section 9 501(3) 9-602, which, among other things, states that certain rules, to the 
extent they give rights to the debtor and impose duties on the secured party, may not be 
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waived or varied, was is not incorporated in this Article. Given the significance of 
freedom of contract in the development of the common law as it applies to bailments for 
hire and the lessee's lack of an equity of redemption, there was is no reason to impose that 
restraint. 
Cross References: 
Sections .f--l..96 1-305, 2A-508, 2A-523, Article 9, especially Sections 9 501(1) 
9-601 and 9 501(3) 9-602. 
Definitional Cross References: 
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"Party". Section 1-201 (29)(b )(26). 
"Remedy". Section 1-20194)(b)(32). 
"Rights". Section 1-201f3-6)(b)(34). 
Sec. B-10. 11 MRSA §2-1518, sub-§(2), as enacted by PL 1991, c. 805, §4, is 
amended to read: 
(2). Except as otherwise provided with respect to damages liquidated in the lease 
agreement (section 2-1504) or otherwise determined pursuant to agreement of the parties 
(section 1 102, subseotion (3) 1-1302 and section 2-1503), if a lessee's cover is by a lease 
agreement substantially similar to the original lease agreement and the new lease 
agreement is made in good faith and in a commercially reasonable manner, the lessee 
may recover from the lessor as damages: 
(a). The present value, as of the date of the commencement of the term of the new 
lease agreement, of the rent under the new lease agreement applicable to that period 
of the new lease term comparable to the then remaining term of the original lease 
agreement minus the present value as of the same date of the total rent for the then 
remaining lease term of the original lease agreement; and 
(b). Any incidental or consequential damages minus expenses saved in consequence 
of the lessor's default. 
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Official Comment 
1. Subsection (1) allows the lessee to take action to fix its damages after default by 
the lessor. Such action may consist of the lease of goods. The decision to cover is a 
function of commercial judgment, not a statutory mandate replete with sanctions for 
failure to comply. Cf Section 9-5.Q.+ 9-625. 
Cross References: 
Sections 2-712(1), 2A-519 and 9-5.Q.+ 9-625. 
Definitional Cross References: 
"Agreement". Section 1-201(hl(3). 
"Contract". Section 1-201f!-B(b)(12). 
"Good faith". Sections 1-201(b)(20) 1-201(19) and 2-103(1)(b). 
"Goods". Section 2A-I03(1)(h). 
"Lease". Section 2A-I03(1)G). 
"Lease agreement". Section 2A-I03(1)(k). 
"Lease contract". Section 2A-I03(1)(l). 
"Lessee". Section 2A-I03(1)(n). 
"Lessor". Section 2A-I03(1)(P). 
"Party". Section 1-201~(b)(26). 
"Present value". Section 2A l03(1)(u) 1-201(b)(28). 
"Purchase". Section 2A-I03(1)(v). 
Sec. B-ll. 11 MRSA §2-1519, sub-§(I), as enacted by PL 1991, c. 805, §4, is 
amended to read: 
(1). Except as otherwise provided with respect to damages liquidated in the lease 
agreement (section 2-1504), or otherwise determined pursuant to agreement of the parties 
(section 1 102, subsection (3) 1-1302 and section 2-1503) if a lessee elects not to cover or 
a lessee elects to cover and the cover is by lease agreement that for any reason does not 
qualify for treatment under section 2-1518, subsection (2) or is by purchase or otherwise, 
the measure of damages for nondelivery or repudiation by the lessor or for rejection or 
revocation of acceptance by the lessee is the present value, as of the date of the default, of 
the then market rent minus the present value as of the same date of the original rent, 
computed for the remaining lease term of the original lease agreement, together with 
incidental and consequential damages minus expenses saved in consequence of the 
lessor's default. 
Official Comment (Our §2-1519) 
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Definitional Cross References: 
"Conforming". Section 2A-I03(1)(d). 
"Delivery". Section 1-201f!4)(b)(15). 
"Goods". Section 2A-I03(1)(h). 
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"Lease". Section 2A-l 03(1 )0). 
"Lease agreement". Section 2A-I03(1)(k). 
"Lessee". Section 2A-l 03(1 )(n). 
"Lessor". Section 2A-I03(1)(p). 
"Notification". Section 1-201(26) 1-202. 
"Present value". Section 2A-I03(1)(u) 1-201(b)(28). 
"Value". Section 1 201(44) 1-204. 
Sec. B-12. 11 MRSA §2-1527, sub-§(2), as enacted by PL 1991, c. 805, §4, is 
amended to read: 
(2). Except as otherwise provided with respect to damages liquidated in the lease 
agreement (section 2-1504) or otherwise determined pursuant to agreement of the parties 
(section 1 102, subseotion (3) 1-1302 and section 2-1503), if the disposition is by lease 
agreement substantially similar to the original lease agreement and the new lease 
agreement is made in good faith and in a commercially reasonable manner, the lessor 
may recover from the lessee as damages: 
(a). Accrued and unpaid rent as of the date of the commencement of the term of the 
new lease agreement; 
(b). The present value, as of the same date, of the total rent for the then remaining 
lease term of the original lease agreement minus the present value, as of the same 
date, of the rent under the new lease agreement applicable to that period of the new 
lease term comparable to the then remaining term of the original lease agreement; and 
(c). Any incidental damages allowed under section 2-1530 minus expenses saved in 
consequence of the lessee's default. 
Official Comment (Our § 2-1527) 
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1. Subsection (1), a revised version of the first sentence of subsection 2-706(1), 
allows the lessor the right to dispose of goods after a statutory or other material default by 
the lessee (even if the goods remain in the lessee's possession-Section 2A-525(2», after 
the lessor refuses to deliver or takes possession of the goods, or, if agreed, after other 
contractual default. 
The lessor's decision to exercise this right is a function of a 
commercial judgment, not a statutory mandate replete with sanctions for failure to 
comply. Cf. Section 9-W+ 9-625. As the owner of the goods, in the case of a lessor, or 
as the prime lessee of the goods, in the case of a sublessor, compulsory disposition of the 
goods is inconsistent with the nature of the interest held by the lessor or the sublessor and 
is not necessary because the interest held by the lessee or the sublessee is not protected by 
a right of redemption under the common law or this Article. Subsection 2A-527(5). 
2. The rule for determining the measure of damages recoverable by the lessor against 
the lessee is a function of several variables. If the lessor has elected to effect disposition 
under subsection (1) and such disposition is by lease that qualifies under subsection (2), 
the measure of damages set forth in subsection (2) will apply, absent agreement to the 
contrary. Sections 2A-S04, 2A-I03(4) and 1 102(3) 1-302. 
* * * 
Cross References: 
Sections 1 102(3) 1-302, 2-706(1), 2-706(5), 2-706(6), 2A-I03(4), 2A-304(1), 
2A-S04, 2A-S07(2), 2A-S23(1)(e), 2A-S2S(2), 2A-S27(S), 2A-S28 and 9-W+ 9-625. 
"Buyer" and "Buying". Section 2-103(1)(a). 
"Delivery". Section 1-201f!4)(b)(1S). 
"Good faith". Sections 1-201(b)(20)1 201(19) and 2 103(1)(b). 
"Goods". Section 2A-l 03(1 )(h). 
"Lease". Section 2A-I03(1)G). 
"Lease contract". Section 2A-I03(1)(l). 
"Lessee". Section 2A-I03(1)(n). 
"Lessor". Section 2A~103(1)(P). 
"Present value". Section 2A: 103(1)(u) 1-201(b)(28). 
"Rights". Section 1-201~(b)(34). 
"Sale". Section 2-106(1). 
"Security interest". Section§ 1-201~(b)(3S) and 1-203. 
"Value". Section 1 201(44) 1-204. 
Sec. B-13. 11 MRSA §2-1528, as enacted by PL 1991, c. 805, §4, is amended to 
read: 
§2-1528. Lessor's damages for nonacceptance, failure to pay, repudiation or other 
default 
(1). Except as otherwise provided with respect to damages liquidated in the lease 
agreement (section 2-1504) or otherwise determined pursuant to agreement of the parties, 
(section 1 102, subsection (3) 1-1302 and section 2-1503), if a lessor elects to retain the 
goods or a lessor elects to dispose of the goods and the disposition is by lease agreement 
that for any reason does not qualify for treatment under section 2-1527, subsection (2), or 
is by sale or otherwise, the lessor may recover from the lessee as damages for a default of 
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the type described in section 2-1523, subsection (1) or section 2-1523, subsection (3), 
paragraph (a), or, if agreed, for other default of the lessee: 
(a). Accrued and unpaid rent as of the date of default if the lessee has never taken 
possession of the goods, or, if the lessee has taken possession of the goods, as of the 
date the lessor repossesses the goods or an earlier date on which the lessee makes a 
tender of the goods to the lessor; 
(b). The present value as of the date determined under this subsection of the total rent 
for the then remaining lease term of the original lease agreement minus the present 
value as of the same date of the market rent at the place where the goods are located 
computed for the same lease term; and 
(c). Any incidental damages allowed under section 2-1530 minus expenses saved in 
consequence of the lessee's default. 
(2). If the measure of damages provided in subsection (1) is inadequate to put a 
lessor in as good a position as performance would have, the measure of damages is the 
present value of the profit, including reasonable overhead, the lessor would have made 
from full performance by the lessee together with any incidental damages allowed under 
section 2-1530, due allowance for costs reasonably incurred and due credit for payments 
or proceeds of disposition. 
Official Comment (Our §2-1528) 
* * * 
1. Subsection (1), a substantially revised version of Section 2-708(1), states the basic 
rule governing the measure of lessor's damages for a default described in Section 
2A-523(1) or (3)(a), and, if agreed, for a contractual default. This measure will apply if 
the lessor elects to retain the goods (whether undelivered, returned by the lessee, or 
repossessed by the lessor after acceptance and default by the lessee) or if the lessor's 
disposition does not qualify under subsection 2A-527(2). Section 2A-527(3). Note that 
under some of these conditions, the lessor may recover damages from the lessee pursuant 
to the rule set forth in Section 2A-529. There is no sanction for disposition that does not 
qualify under subsection 2A-527(2). Application of the rule set forth in this section is 
subject to agreement to the contrary. Sections 2A-504, 2A-103(4) and 1 102(3) 1-302. 
* * * 
Cross References: 
Sections 1 102(3) 1-302, 2-708, 2A-I03(1)(u), 2A--402, 2A-504, 2A-507, 
2A-527(2) and 2A-529. 
Definitional Cross References: 
"Agreement". Section 1-201ill(3). 
"Goods". Section 2A-I03(1)(h). 
"Lease". Section 2A-I03(1)(j). 
"Lease agreement". Section 2A-I03(1)(k). 
"Lessee". Section 2A-I03(1)(n). 
"Lessor". Section 2A-I03(1)(P). 
"party". Section 1-201~(b)(26). 
"Present value". Section 2A 103(1)(u) 1-201(b)(28). 
"Sale". Section 2-106(1). 
Sec. B-14. 11 MRSA §3-1103, sub-§(l), ~(d), as enacted by PL 1993, c. 293, 
Pt. A, §2, is repealed. 
Sec. B-15. 11 MRSA §3-1103, suh-§(l), ~G), as enacted by PL 1993, c. 293, Pt. 
A, §2, is amended to read: 
(j). "Prove" with respect to a fact means to meet the burden of establishing the fact 
(section -1-2Q.±. 1-1201, subsection (8)). 
Official Comment (Our §3-1103) 
* * * 
4. Subsection (a)(4) introduces a defInition of good faith to apply to Articles 3 and 4. 
FOlmer Articles 3 and 4 used the definition in Section 1 201(19). The defInition in 
subsection (a)(4) is consistent with the definitions of good faith applicable to .Articles 2, 
2A., 4, and 4A. The defInition requires not only honesty in fact but also "observance of 
reasonable commercial standards of fair dealing." Although fair dealing is a broad tenn 
that must be defined in context, it is clear that it is concerned with the fairness of conduct 
rather than the care with which an act is perfonned. Failure to exercise ordinary care in 
conducting a transaction is an entirely different concept than failure to deal fairly in 
conducting the transaction. Both fair dealing and ordinru:y care, vlhich is defined in 
Section 3 103(a)(7), are to be judged in the light of reasonable commercial standards, but 
those standards in each case are directed to different aspects of commercial conduct. 
~. Subsection (a)(7) is a defInition of ordinary care which is applicable not only to 
Article 3 but to Article 4 as well. See Section 4--104(c). The general rule is stated in the 
fust sentence of subsection (a)(7) and it applies both to banks and to persons engaged in 
businesses other than banking. 
Ordinary care means observance of reasonable 
commercial standards of the relevant businesses prevailing in the area in which the 
person is located. The second sentence of subsection (a)(7) is a particular rule limited to 
the duty of a bank to examine an instrument taken by a bank for processing for collection 
or payment by automated means. This particular rule applies primarily to Section 4-406 
and it is discussed in Comment 4 to that section. Nothing in Section 3-103(a)(7) is 
intended to prevent a customer from proving that the procedures followed by a bank are 
unreasonable, arbitrary, or unfair. 
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e~. In subsection (c) reference is made to a new definition of "bank" in amended 
Article 4. 
Sec. B-16. 11 MRSA §4-104, suh-§(3), as amended by PL 2003, c. 594, §9, is 
further amended to read: 
(3). 
The following definitions in other Articles apply to this Article: 
"Acceptance. " 
"Alteration. " 
"Cashier's check" 
"Certificate of deposit." 
"Certified Check." 
"Check" 
"Demand draft." 
"Draft." 
"Good faith. " 
"Holder in due course." 
"Instrument. " 
"Notice of dishonor." 
"Order." 
"Ordinary care." 
"Person entitled to enforce." 
"Presentment. " 
"Promise." 
"Prove," 
"Teller's check" 
"Unauthorized signature." 
Section 3-1409. 
Section 3-1407. 
Section 3-1104. 
Section 3-1104. 
Section 3-1409. 
Section 3-1104. 
Section 3-1104. 
Section 3-1104. 
Seotion 3 1103. 
Section 3-1102. 
Section 3-1104. 
Section 3-1503. 
Section 3-1103. 
Section 3-1103. 
Section 3-1301. 
Section 3-1501. 
Section 3-1103. 
Section 3-1103. 
Section 3-1104. 
Section 3-1403. 
Sec. B-17. 11 MRSA §4-110S, suh-§(I), -,r(e), as enacted by PL 1991, c. 812, 
§2, is amended to read: 
(e). "Funds transfer system" means a wire transfer network, automated clearing 
house or other communication system of a clearing house or other association of 
banks through which a payment order by a bank may be transmitted to the bank to 
which the order is addressed; and 
Sec. B-18. 11 MRSA §4-110S, suh-§(I), ~(f), as enacted by PL 1991, c. 812, 
§2, is repealed. 
Sec. B-19. 11 MRSA §4-110S, suh-§(l), -,r(g), as enacted by PL 1991, c. 812, 
§2, is amended to read: 
(g). "Prove" with respect to a fact means to meet the burden of establishing the fact 
(section ~ 
1-1201, subsection (8)). 
Sec. B-20. 11 MRSA §4-1106, suh-§(l), as enacted by PL 1991, c. 812, §2, is 
amended to read: 
(1). 
The time of receipt of a payment order or communication cancelling or 
amending a payment order is determined by the rules applicable to receipt of a notice 
stated in section 1 201, subsection 271-1202. A receiving bank may fix a cut-off time or 
times on a funds transfer business day for the receipt and processing of payment orders 
and communications cancelling or amending payment orders. Different cut-off times 
may apply to payment orders, cancellations or amendments, or to different categories of 
payment orders, cancellations or amendments. A cut-off time may apply to senders 
generally or different cut-off times may apply to different senders or categories of 
payment orders. If a payment order or communication cancelling or amending a payment 
order is received after the close of a funds transfer business day or after the appropriate 
cut-off time on a funds transfer business day, the receiving bank may treat the payment 
order or communication as received at the opening of the next funds transfer business 
day. 
Section 4A-I06. TIME PAYMENT ORDER IS RECEIVED. (Our §4-1106) 
* * * 
Official Comment 
The time that a payment order is received by a receiving bank usually defines the 
payment date or the execution date of a payment order. Section 4A-401 and Section 
4A-301. 
The time of receipt of a payment order, or communication cancelling or 
amending a payment order is defmed in subsection (a) by reference to the rules stated in 
Section 1 201(27) 1-202. Thus, time of receipt is determined by the same rules that 
determine when a notice is received. Time of receipt, however, may be altered by a cut-
off time. 
Sec. B-21. 11 MRSA §4-1204, sub-§(2), as enacted by PL 1991, c. 812, §2, is 
amended to read: 
(2). Reasonable time under subsection (1) may be fixed by agreement as stated in 
section -1-2Q4. 1-1302, subsection fB ill, but the obligation of a receiving bank to refund 
payment as stated in subsection (1) may not otherwise be varied by agreement. 
Sec. B-22. 11 MRSA §5-1103, sub-§(3), as enacted by PL 1997, c. 429, Pt. A, 
§2 and affected by §4, is amended to read: 
(3). With the exception of this subsection, subsections (1) and (4), section 5-1102, 
subsection (1), paragraphs (i) and CD, section 5-1106, subsection (4), and section 5-1114, 
subsection (4), and except to the extent prohibited in section 1 102, subsection (3) 1-1302 
and section 5-1117, subsection (4), 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 
faihrre to perform obligations is not sufficient to vary obligations prescribed by this 
Article. 
Official Comment (Our §5-11 03) 
* * * 
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2. Like all of the provlSlons of the Uniform Commercial Code, Article 5 is 
supplemented by Section 1-103 and, through it, by many rules of statutory and common 
law. Because this article is quite short and has no rules on many issues that will affect 
liability with respect to a letter of credit transaction, law beyond Article 5 will often 
determine rights and liabilities in letter of credit transactions. Even within letter of credit 
law, the article is far from comprehensive; it deals only with "certain" rights of the 
parties. Particularly with respect to the standards of performance that are set out in 
Section 5-108, it is appropriate for the parties and the courts to turn to customs and 
practice such as the Uniform Customs and Practice for Documentary Credits, currently 
published by the International Chamber of Commerce as I.C.C. Pub. No. 500 (hereafter 
UCP). Many letters of credit specifically adopt the UCP as applicable to the particular 
transaction. Where the UCP are adopted but conflict with Article 5 and except where 
variation is prohibited, the UCP terms are permissible contractual modifications under 
Sections 1 102(3) 1-302 and 5-103(c). See Section 5-116(c). Normally Article 5 should 
not be considered to conflict with practice except when a rule explicitly stated in the UCP 
or other practice is different from a rule explicitly stated in Article 5. 
7 
[remainder of comment 2 is unchanged] 
* * * 
Sec. B-23. 11 MRS A §7-102, sub-§(l), ~(e), is amended to read: 
(e). 
"Document" means document of title as defined in the general definitions in 
Article 1 (section 1-201 1-1201). 
Sec. B-24. 11 MRSA §8-1102, sub-§(l), «U(j), as enacted by PL 1997, c. 429, Pt. B, 
§2, is repealed. 
Official Comment (Our §8-1102) 
* * * 
. .!!Good faith . .!! Good faith is derIDed in Article 8 for purposes ofthe application to 
Article 8 of Section 1-203, which provides that "Every contract or duty within this l\ct 
[the Uniform Commercial Code] imposes an obligation of good faith in its performance 
or enforcement." Section 1-201(b)(20) dermes "good faith" as "honesty in fact and the 
observance of reasonable commercial standards of fair dealing." The sole function of the 
good faith deflnition in Revised Article 8 is to give content to the Section 1 203 
obligation as it applies to contracts and duties that are governed by }\..rticle 8. 
The 
standard is one of "reasonable commercial standards of fair dealing. " The reference to 
commercial standards makes clear that assessments of conduct are to be made in light of 
the commercial setting. The substantive rules of Article 8 have been drafted to take 
account of the commercial circumstances of the securities holding and processing system. 
For example, Section 8-115 provides that a securities intermediary acting on an effective 
entitlement order, or a broker or other agent acting as a conduit in a securities transaction, 
is not liable to an adverse claimant, unless the claimant obtained legal process or the 
intermediary acted in collusion with the wrongdoer. This, and other similar provisions, 
see Sections 8-404 and 8-503(e), do not depend on notice of adverse claims, because it 
would impair rather than advance the interest of investors in having a sound and efficient 
securities clearance and settlement system to require intermediaries to investigate the 
propriety of the transactions they are processing. The good faith obligation does not 
supplant the standards of conduct established in provisions of this kind. 
In Revised Article 8, the defInition of good faith is not germane to the question 
whether a purchaser takes free from adverse claims. The rules on such questions as 
whether a purchaser who takes in suspicious circumstances is disqualifIed from protected 
purchaser status are treated not as an aspect of good faith but directly in the rules of 
Section 8-105 on notice of adverse claims. 
* * * 
Definitional Cross References: 
"Agreement". Section 1-201{hl(3). 
"Bank". Section 1-201{hl(4). 
"Person". Section 1-201fWj(b)(27). 
"Send". Section 1-201fJ-81(b)(36). 
"Signed". Section 1:-201tJ91(b)(37). 
"Writing". Section 1-201f461(b)(43). 
Sec. B-25. 11 MRSA §9-1102, sub-§(43), as enacted by PL 1999, c. 699, Pt. A, 
§2 and affected by §4, is repealed. 
Official Comment (Our §9-1102) 
* * * 
3. Definitions Relating to Creation of a Security Interest. 
* * * 
2.6 
b. 
"Security Agreement." 
The defInition of "security agreement" is 
substantially the same as under former Section 9-105-an agreement that creates or 
provides for a security interest. However, the term frequently was used colloquially 
in former Article 9 to refer to the document or writing that contained a debtor's 
security agreement. This Article eliminates that usage, reserving the term for the 
more precise meaning specifIed in the defInition. 
Whether an agreement creates a security interest depends not on whether the parties 
intend that the law characterize the transaction as a security interest but rather on whether 
the transaction falls within the defInition of "security interest" in Section 1-201. Thus, an 
agreement that the parties characterize as a "lease" of goods may be a "security 
agreement," notwithstanding the parties' stated intention that the law treat the transaction 
as a lease and not as a secured transaction. See Section 1-203. 
35· 
* * * 
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Consignment-Related Definitions: 
"Consignee"; 
"Consignment"; 
"Consignor." The definition of "consignment" excludes, in subparagraphs (B) and (C), 
transactions for which filing would be inappropriate or of insufficient benefit to justify 
the costs. A consignment excluded from the application of this Article by one of those 
subparagraphs may still be a true consignment; however, it is governed by non-Article 9 
law. 
The definition also excludes, in subparagraph (D), what have been called 
"consignments intended for security." 
These "consignments" are not bailments but 
secured transactions. Accordingly, all of Article 9 applies to them. See Sections 1-
201~(b)(35), 9-109(a)(1). The "consignor" is the person who delivers goods to the 
"consignee" in a consignment. 
The definition of "consignment" requires that the goods be delivered "to a merchant 
for the pUIpOSe of sale." If tb.e goods are delivered for another pUIpOSe as well, such as 
milling or processing, the transaction is a consignment nonetheless because a purpose of 
the delivery is "sale." On the other hand, if a merchant-processor-bailee will not be 
selling the goods itself but will be delivering to buyers to which the owner-bailor agreed 
to sell the goods, the transaction would not be a consignment. 
* * * 
16. "Document." The definition of "document" is unchanged in substance from the 
corresponding definitions in former Section 9-105. See Section 1-201fl-§1(b)(16) and 
Comment -l-3-lQ. 
* * * 
19. "Good Faith." This Article expands the definition of "good faith" to include 
"the observance of reasonable commercial standards of fair dealing." The definition in 
this section applies when the term is used in this Article, and the same concept applies in 
the context of this Article for purposes of the obligation of good faith imposed by Section 
1-203. See subsection (c). 
Sec. B-26. 17-A MRSA §902, sub-§l, ~A, as enacted byPL 1975, c. 499, §1, is 
amended to read: 
A. He The person destroys, removes, conceals, encumbers, transfers or otherwise 
deals with property subject to a security interest, as defined in Title 11, section ~ 
1-1201, subsection ~ 
.Q1), with the intent to hinder enforcement of that interest; or 
Sec. B-27. Effective date. This Part takes effect January 1,2010. 
SUMMARY 
This bill replaces Article 1 of the Uniform Commercial Code with the 2001 Revision 
adopted by the National Conference of Commissioners on Uniform State Laws. The bill 
includes amendments approved in 2003 as part of the revision of Article 7. Explanatory 
notes and Uniform Comments as prepared by the Uniform Law Commissioners are 
included. 
This Act takes effect January 1, 2010. 
-