Article I

Question 1

1-201(a) General definitions

Answer 1

unless otherwise stated the definitions in this section are the official UCC definitions

Question 2

1-201(b)(1) “Action”

Answer 2

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

Question 3

1-201(b)(2) “Aggrieved party”

Answer 3

means party entitled to pursue a remedy

Question 4

1-201(b)(3) “Agreement”

Answer 4

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 1-303

Question 5

1-201(b)(4) “Bank”

Answer 5

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

Question 6

1-201(b)(5) “Bearer”

Answer 6

means a person in possession of a negotiable instrument, a document of title, or certificated security that is payable to bearer or endorsed in the blank

Question 7

1-201(b)(6) “Bill of lading”

Answer 7

means a document evidencing the receipt of goods for shipment issued by a person engaged in the business of transporting or forwarding goods

Question 8

1-201(b)(7) “Branch”

Answer 8

includes a separately incorporated foreign branch of a bank

Question 9

1-201(b)(8) “Burden of establishing”

Answer 9

a fact means the burden of persuading the trier of fact that the existence of the fact is more probable than its nonexistence

Question 10

1-201(b)(9) “Buyer in the ordinary course of business”

Answer 10

means a person that buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods, and in the ordinary course from a person, other than a pawnbroker, in the business of selling goods of that kind.
[Then] 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 the 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.

Question 11

1-201(b)(10) “Conspicuous”

Answer 11

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

Conspicuous terms include the following:
(A) a heading in capitals equal to or greater in size than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same or lesser size; and
(B) language in the body of a record or display in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from surrounding text of the same size, or set off from surrounding text of the same size by symbols or other marks that call attention to the language

Question 12

1-201(b)(11) “Consumer”

Answer 12

means an individual who enters into a transaction primarily for personal, family, or household purposes

Question 13

1-201(b)(12) “Contract”

Answer 13

as distinguished from “agreement,” means the total legal obligation that results from the parties’ agreement as determined by the UCC as supplemented by other applicable laws

Question 14

1-201(b)(13) “Creditor”

Answer 14

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

Question 15

1-201(b)(14) “Defendant”

Answer 15

includes a person in the position of defendant in the counterclaim, cross-claim, or third-party claim

Question 16

1-201(b)(15) “Delivery”

Answer 16

with respect to an instrument, the document of title, or chattel paper, means voluntary transfer of possession

Question 17

1-201(b)(16) “Document of title”

Answer 17

includes bill of lading, dock warrant, dock receipt, warehouse receipt or order for the delivery of goods, and also any other document which in the regular course of business or financing is treated as inadequately evidencing that the person in possession of it is entitled to receive, hold, and dispose of the document and goods it covers.
To be a document of title, a document must purport to be issued by or addressed to bailee and purport to cover goods in the bailee’s possession which are either identified or are fungible portions of an identified mass

Question 18

1-201(b)(17) “Fault”

Answer 18

means a default, breach, or wrongful act or omission

Question 19

1-201(b)(18) “Fungible goods”

Answer 19

(A) goods of which any unit, by nature or usage of trade, is the equivalent of any other like unit; or
(B) goods that by agreement are treated as equivalent

Question 20

1-201(b)(19) “Genuine”

Answer 20

means free of forgery or counterfeiting

Question 21

1-201(b)(20) “Good faith”

Answer 21

except as otherwise provided in Article 5, means honesty in fact, and the observance of reasonable commercial standards of fair dealing

Question 22

1-201(b)(21) “Holder”

Answer 22

(A) the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession; or
(B) [then] the person in possession of a document of title if the goods are deliverable either to bearer or to the order of the person in possession

Question 23

1-201(b)(22) “Insolvency proceeding”

Answer 23

includes an assignment for the benefit of creditors or other proceeding intended to liquidate or rehabilitate the estate of the person involved

Question 24

1-201(b)(23) “Insolvent”

Answer 24

(A) having generally ceased to pay debts in the ordinary course of business other than as a result of bona fide dispute;
(B) being unable to pay debts as they become due; or
(C) being insolvent within the meaning of federal bankruptcy law

Question 25

1-201(b)(24) “Money”

Answer 25

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

Question 26

1-201(b)(25) “Organization”

Answer 26

means a person other than an individual

Question 27

1-201(b)(26) “Party”

Answer 27

as distinguished from “third party,” means a person that has engaged in a transaction or made an agreement subject to the UCC

Question 28

1-201(b)(27) “Person”

Answer 28

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

Question 29

1-201(b)(28) “Present value”

Answer 29

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 reasonable at the time the transaction is entered into or, if the 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

Question 30

1-201(b)(29) “Purchase”

Answer 30

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 a property

Question 31

1-201(b)(30) “Purchaser”

Answer 31

means a person that takes by purchase

Question 32

1-201(b)(31) “Record”

Answer 32

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

Question 33

1-201(b)(32) “Remedy”

Answer 33

means any remedial right to which an aggrieved party is entitled with or without resort to a tribunal

Question 34

1-201(b)(33) “Representative”

Answer 34

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

Question 35

1-201(b)(34) “Right”

Answer 35

includes remedy

Question 36

1-201(b)(35) “Security Interest”

Answer 36

means an interest in personal property or fixtures which 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
“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.
Except as otherwise provided in Section 2-505, the right of a seller or lessor of goods under Article 2 or 2A 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.
Except as otherwise provided in Section 2-505, the right of a seller or lessor of goods under Article 2 or 2A 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.
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 1-203

Question 37

1-201(b)(36) “Send”

Answer 37

in connection with a writing, record, or notice means:
(A) to deposit in the mail or deliver for transmission by any other usual means of communication with postage or cost of transmission provided for and properly addressed and, in the case of an instrument, to an address specified thereon or otherwise agreed, or if there be none to any address reasonable under the circumstances; or
(B) in any other way to cause be received any record or notice within the time it would have arrived if properly sent

Question 38

1-201(b)(37) “Signed”

Answer 38

includes using any symbol executed or adopted with present intention to adopt or accept a writing

Question 39

1-201(b)(38) “State”

Answer 39

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

Question 40

1-201(b)(39) “Surety”

Answer 40

includes a guarantor or other secondary obligor

Question 41

1-201(b)(40) “Term”

Answer 41

means a portion of an agreement that related to a particular matter

Question 42

1-201(b)(41) “Unauthorized signature”

Answer 42

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

Question 43

1-201(b)(42) “Warehouse receipt”

Answer 43

means a receipt issued by a person engaged in the business of storing goods for hire

Question 44

1-201(b)(43) “Writing”

Answer 44

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

Question 45

1-202(a) Notice; Knowledge

Answer 45

Subject to subsection (f), then a person has “notice” of a fact if the person:

(1) has actual knowledge of it;
(2) has received a notice of notification of it; or
(3) from all the facts and circumstances known to the person at the time in question, has reason to know it exists

Question 46

1-202(b) “Knowledge”

Answer 46

“Knowledge” means actual knowledge

“Knows” has a corresponding meaning

Question 47

1-202(c) “Discover,” “learn,” or words of similar import

Answer 47

refer to knowledge rather than reason to know

Question 48

1-202(d) A person “notifies” or “gives” a notice or notification

Answer 48

to another person by taking such steps as may be reasonably required to inform the other person in the ordinary course, whether or not the other person actually comes to know of it

Question 49

1-202(e) Subject to subsection (f), then a person “receives” a notice or notification when

Answer 49

(1) it comes to that person’s attention; or
(2) it is duly delivered in a form reasonable under the circumstances at the place of business through which the contract was made or at another location held out by that person as the place for receipt of such communications

Question 50

1-202(f) Notice, knowledge, or a notice or notification received by an organization is effective for a particular transaction

Answer 50

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.
[Then] 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.
[Then] 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 reason to know of the transaction and that the transaction would be materially affected by the information

Question 51

1-203(a) Lease Distinguished from Security Interest

Answer 51

Whether a transaction in the form of a lease creates a lease or security interest is determined by the facts of each case

Question 52

1-203(b) Lease Distinguished from Security Interest

Answer 52

[Then] 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 term of the lease and is not subject to termination by the lessee, and:

(1) the original term of the lease is equal tp pr greater than the remaining economic life of the goods;
(2) the lessee is bound to renew the lease for the remaining economic life of the goods os ir bound to become the owner of the goods;
(3) 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
(4) the lessee has an option to become the owner of goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement.

Question 53

1-203(c) Lease Distinguished from Security Interest

Answer 53

A transaction in the form of a lease does not create a security interest merely because:

(1) the present value of the consideration the lessee is obligated to pay the lessor for the right to possession and the use of goods is substantially equal to or is greater than the fair market value of the goods at the time the lease is entered into;
(2) the lessee assumes the risk of loss of the goods;
(3) the lessee agrees to pay, with respect to the goods, taxes, insurance, filing, recording, or registration fees, or service or maintenance costs;
(4) the lessee has an option to renew the lease or to become the owner of the goods;
(5) the lessee has the 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
(6) 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

Question 54

1-203(d) Lease Distinguished from Security Interest

Answer 54

[Then] 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. [Then] Additional consideration is not nominal if:

(1) 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 renewal determined at the time the option is to be performed; or
(2) 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

Question 55

1-203(e)

Answer 55

The “remaining economic life of the goods” and “reasonably predictable” fair market rent, fair market value, or cost of the performing under the lease agreement must be determined with reference to the facts and circumstances at the time the transaction is entered into

Question 56

1-204 Value

Answer 56

Except as otherwise provided in Articles 3, 4, [and] 5, [and 6], [then] 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 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

Question 57

1-303(a) Course of Performance, Course of Dealing, and Usage of Trade

Answer 57

A “course of performance” is a sequence of conduct between the parties to a particular transaction [then] that exists if:

(1) the agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and
(2) the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection

Question 58

1-303(b)

Answer 58

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

Question 59

1-303(c)

Answer 59

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, then the interpretation of the record is a question of law

Question 60

1-303(d)

Answer 60

A course of performance or course of dealing between 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 used to occur may be so utilized as to that part of the performance.

Question 61

1-303(e)

Answer 61

Except as otherwise provided in subsection (f), 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 reasonable [then]:

(1) express terms prevail over course of performance, course of dealing, and usage and trade;
(2) course of performance prevails over course of dealing and usage of trade; and
(3) course of dealing prevails over usage of trade

Question 62

1-303(f)

Answer 62

Subject to Section 2-209, a course of performance is relevant to show a waiver or modification of any term inconsistent with the course of performance

Question 63

1-303(g)

Answer 63

[Then] 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 finds sufficient to prevent unfair surprise to the other party