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NO. 46. AN ACT TO AMEND AND CLARIFY CERTAIN PROVISIONS OF THE UNIFORM COMMERCIAL CODE.

(H.119)

It is hereby enacted by the General Assembly of the State of Vermont:

Sec. 1. 9A V.S.A. § 9-102 is amended to read:

§ 9-102. DEFINITIONS AND INDEX OF DEFINITIONS

(a) In this article:

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(11) "Chattel paper" means a record or records that evidence both a monetary obligation and a security interest in specific goods, a security interest in specific goods and software used in the goods, a security interest in specific goods and license of software used in the goods, a lease of specific goods, or a lease of specific goods and license of software used in the goods. In this paragraph, "monetary obligation" means a monetary obligation secured by the goods or owed under a lease of the goods and includes a monetary obligation with respect to software used in the goods. The term does not include:

(A) charters or other contracts involving the use or hire of a vessel; or

(B) records that evidence a right to payment arising out of the use of a credit or charge card, or information contained on or for use with the card. If a transaction is evidenced by records that include an instrument or series of instruments, the group of records taken together constitutes chattel paper.

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(60) "Original debtor", except as used in Section 9-310(c), means a person that, as debtor, entered into a security agreement to which a new debtor has become bound under Section 9-203(d).

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(64) "Proceeds", except as used in Section 9-609(b), means the following property:

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Sec. 1a. 9A V.S.A. § 9-109(c) is amended to read:

§ 9-109. SCOPE

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(c) This article does not apply to the extent that:

(1) a statute, regulation, or a treaty of the United States expressly preempts this article;

*[

(2) another statute of this state expressly governs the creation, perfection, priority or enforcement of a security interest created by this state or a governmental unit of this state;

(3)]*(2) a statute of another state, a foreign country, or a governmental unit of another state or a foreign country, other than a statute generally applicable to security interests, expressly governs creation, perfection, priority, or enforcement of a security interest created by the state, country, or governmental unit; or

*[

(4)]*(3) the rights of a transferee beneficiary or nominated person under a letter of credit are independent and superior under section 5-114.

Sec. 1b. 9A V.S.A. § 9-109(d)(14) is amended to read:

(14) a transfer by *[a government]* this state or a *[government]* subdivision*[ or]*, agency, department, county, municipality, or other unit of the government of this state;

Sec. 2. 9A V.S.A. § 9-311 is amended to read:

§ 9-311. PERFECTION OF SECURITY INTERESTS IN PROPERTY

SUBJECT TO CERTAIN STATUTES, REGULATIONS, AND TREATIES

* * *

(d) During any period in which collateral subject to a statute specified in subdivision (a)(2) is inventory held for sale or lease by a person or leased by that person as lessor and that person is in the business of selling *[or leasing]* goods of that kind, this section does not apply to a security interest in that collateral created by that person *[as debtor]*.

Sec. 3. 9A V.S.A. § 9-317 is amended to read:

§ 9-317. INTERESTS THAT TAKE PRIORITY OVER OR TAKE FREE OF

SECURITY INTEREST OR AGRICULTURAL LIEN

(a) A security interest or agricultural lien is subordinate to the rights of:

(1) a person entitled to priority under Section 9-322; and

(2) except as otherwise provided in subsection (e), a person that becomes a lien creditor before the earlier of the time:

(A) the security interest or agricultural lien is perfected; or

(B) one of the conditions specified in Section 9-203(b)(3) is met and a financing statement covering the collateral is filed.

Sec. 4. 9A V.S.A. § 9-406 is amended to read:

§ 9-406. DISCHARGE OF ACCOUNT DEBTOR; NOTIFICATION OF ASSIGNMENT; IDENTIFICATION AND PROOF OF ASSIGNMENT; RESTRICTIONS ON ASSIGNMENT OF ACCOUNTS, CHATTEL PAPER, PAYMENT INTANGIBLES, AND PROMISSORY NOTES INEFFECTIVE

* * *

(b) Subject to subsection (h), notification is ineffective under subsection (a):

* * *

(3) at the option of an account debtor, if the notification notifies the

account debtor to make less than the full amount of any installment or other periodic payment to the assignee, even if:

(A) only a portion of the account, chattel paper, or *[general]* payment intangible has been assigned to that assignee;

* * *

Sec. 5. 9A V.S.A. § 9-509 is amended to read:

§ 9-509. PERSONS ENTITLED TO FILE A RECORD

(a) A person may file an initial financing statement, amendment that adds collateral covered by a financing statement, or amendment that adds a debtor to a financing statement only if:

(1) the debtor authorizes the filing in an authenticated record or pursuant to subsection (b) or (c); or

(2) the person holds an agricultural lien that has become effective at the time of filing and the financing statement covers only collateral in which the person holds an agricultural lien.

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Sec. 6. 9A V.S.A. § 9-513(d) is amended to read:

§ 9-513. TERMINATION STATEMENT

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(d) Except as otherwise provided in Section 9-510, upon the filing of a termination statement with the filing office, the financing statement to which the termination statement relates ceases to be effective. Except as otherwise provided in Section 9-510, for purposes of Sections 9-519(g), 9-522(a), and 9-523(c), the filing with the filing office of a termination statement, relating to a financing statement that indicates that the debtor is a transmitting utility, also causes the effectiveness of the financing statement to lapse.

Sec. 7. 9A V.S.A. § 9-608 is amended to read:

§ 9-608. APPLICATION OF PROCEEDS OF COLLECTION OR ENFORCEMENT; LIABILITY FOR DEFICIENCY AND RIGHT TO SURPLUS

(a) If a security interest or agricultural lien secures payment or performance of an obligation, the following rules apply:

(1) A secured party shall apply or pay over for application the cash proceeds of collection or enforcement under *[this section]* Section 9-607 in the following order to:

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(3) A secured party need not apply or pay over for application noncash proceeds of collection and enforcement under *[this section]* Section 9-607 unless the failure to do so would be commercially unreasonable. A secured party that applies or pays over for application noncash proceeds shall do so in a commercially reasonable manner.

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Sec. 8. 9A V.S.A. § 9-613 is amended to read:

§ 9-613. CONTENTS AND FORM OF NOTIFICATION BEFORE

DISPOSITION OF COLLATERAL: GENERAL

Except in a consumer-goods transaction, the following rules apply:

(1) The contents of a notification of disposition are sufficient if the notification:

* * *

(E) states the time and place of a public *[sale]* disposition or the time after which any other disposition is to be made.

* * *

Sec. 9. 9A V.S.A. § 9-615(a) and (c) are amended to read:

§ 9-615. APPLICATION OF PROCEEDS OF DISPOSITION; LIABILITY FOR DEFICIENCY AND RIGHT TO SURPLUS

(a) A secured party shall apply or pay over for application the cash proceeds of disposition under Section 9-610 in the following order to:

* * *

(c) A secured party need not apply or pay over for application noncash proceeds of disposition under *[this section]* Section 9-610 unless the failure to do so would be commercially unreasonable. A secured party that applies or pays over for application noncash proceeds shall do so in a commercially reasonable manner.

Sec. 10. 9A V.S.A. § 9-625 is amended to read:

§ 9-625. REMEDIES FOR SECURED PARTY’S FAILURE TO COMPLY WITH ARTICLE

* * *

(b) Subject to subsections (c), (d), and (f), a person is liable for damages in the amount of any loss caused by a failure to comply with this article. Loss caused by a failure to comply *[with a request under Section 9-210]* may include loss resulting from the debtor’s inability to obtain, or increased costs of, alternative financing.

* * *

(g) If a secured party fails to comply with a request regarding a list of collateral or a statement of account under Section 9-210, the secured party may claim a security interest only as shown in the list or statement included in the request as against a person that is reasonably misled by the failure.

Sec. 11. REPEAL

Sec. 23 of Act No. 106 of 2000 is hereby repealed.

Sec. 12. 9A V.S.A. Article 9, Part 7 is added to read:

PART 7. TRANSITION

§ 9-701. EFFECTIVE DATE

Act No. 106 of 2000, repealing and reenacting Article 9 of 9A V.S.A., takes effect on July 1, 2001.

§ 9-702. SAVINGS CLAUSE

(a) Except as otherwise provided in this part, the provisions of this article which take effect on July 1, 2001 apply to a transaction or lien within the scope of such provisions, even if the transaction or lien was entered into or created before July 1, 2001.

(b) Except as otherwise provided in subsection (c) of this section and

sections 9-703 through 9-709 of this article as they exist subsequent to July 1, 2001:

(1) transactions and liens that were not governed by the provisions of this title as they existed prior to July 1, 2001, were validly entered into or created before July 1, 2001, and would be subject to the provisions of this article which take effect on July 1, 2001 if they had been entered into or created on or after July 1, 200l, and the rights, duties, and interests flowing from those transactions and liens remain valid on and after July 1, 2001; and

(2) the transactions and liens may be terminated, completed, consummated, and enforced as required or permitted by the provisions of this article as in effect on and after July 1, 2001, or by the law that otherwise would apply if those provisions had not taken effect.

(c) The provisions of this article as in effect on and after July 1, 2001, do not affect an action, case, or proceeding commenced before July 1, 2001.

§ 9-703. SECURITY INTEREST PERFECTED BEFORE EFFECTIVE

DATE

(a) A security interest that is enforceable immediately before July 1, 2001, and would have priority over the rights of a person that becomes a lien creditor at that time, is a perfected security interest under this article as in effect on and after July 1, 2001, if, on July 1, 2001, the applicable requirements for enforceability and perfection under this article as in effect on and after July 1, 2001, are satisfied without further action.

(b) Except as otherwise provided in Section 9-705 of this part, if, immediately before July 1, 2001, a security interest is enforceable and would have priority over the rights of a person that becomes a lien creditor at that time, but the applicable requirements for enforceability or perfection under the provisions of this article as in effect on and after July 1, 2001, are not satisfied when such provisions take effect, the security interest:

(1) is a perfected security interest until June 30, 2002;

(2) remains enforceable thereafter only if the security interest becomes enforceable under Section 9-203 of this article as in effect on and after July 1, 2001, on or before the date set forth in subdivision (l) of this subsection; and

(3) remains perfected thereafter only if the applicable requirements for perfection under this article as in effect on and after July 1, 2001, are satisfied before July 1, 2002.

§ 9-704. SECURITY INTEREST UNPERFECTED BEFORE EFFECTIVE

DATE

A security interest that is enforceable immediately before July 1, 2001 but would be subordinate to the rights of a person that becomes a lien creditor at that time:

(1) remains an enforceable security interest until June 30, 2002;

(2) remains enforceable thereafter if the security interest becomes enforceable under the provisions of Section 9-203 of this article as in effect on and after July 1, 2001, either on July 1, 2001, at any time thereafter through and including June 30, 2002; and

(3) becomes perfected:

(A) without further action, on July 1, 2001 if the applicable requirements for perfection under the provisions of this article as in effect on and after July 1, 2001, are satisfied before or at that time; or

(B) when the applicable requirements for perfection are satisfied if the requirements are satisfied after that time.

§ 9-705. EFFECTIVENESS OF ACTION TAKEN BEFORE EFFECTIVE

DATE

(a) If action, other than the filing of a financing statement, is taken before July 1, 2001 and the action would have resulted in priority of a security interest over the rights of a person that becomes a lien creditor, had the security interest become enforceable before the provisions of this article as in effect on and after July 1, 2001 become effective, the action is effective to perfect a security interest that attaches under this article as in effect on and after July 1, 2001, within one year after such provisions take effect. An attached security interest becomes unperfected on July 1, 2002, unless the security interest becomes a perfected security interest under the provisions of this article as in effect on and after July 1, 2001, on or before June 30, 2002.

(b) The filing of a financing statement before July 1, 2001 is effective to perfect a security interest to the extent the filing would satisfy the applicable requirements for perfection under the provisions of this article as in effect on and after July 1, 2001.

(c) The provisions of this article as in effect on and after July 1, 2001 do not render ineffective an effective financing statement that is filed before July 1, 2001 and satisfied the applicable requirements for perfection under the law of the jurisdiction governing perfection as provided in Section 9-103 of this article as in effect prior to July 1, 2001. However, except as otherwise provided in subsections (d) and (e) and Section 9-706 of this article as in effect on and after July 1, 2001, the financing statement ceases to be effective at the earlier of:

(1) the time the financing statement would have ceased to be effective under the law of the jurisdiction in which it is filed; or

(2) June 30, 2006.

(d) The filing of a continuation statement on or after July 1, 2001 does not continue the effectiveness of the financing statement filed before provisions of this article as in effect on and after July 1, 2001 take effect. However, upon the timely filing of a continuation statement on or after July 1, 2001, and in accordance with the law of the jurisdiction governing perfection as provided in Part 3 of this article as in effect on and after July 1, 2001, the effectiveness of a financing statement filed in the same office in that jurisdiction before July 1, 2001 continues for the period provided by the law of that jurisdiction.

(e) Subdivision (c)(2) of this section applies to a financing statement that is filed against a transmitting utility before July 1, 2001 and satisfied the applicable requirements for perfection under the law of the jurisdiction governing perfection as provided in Section 9-103 of this article as in effect prior to July 1, 2001, only to the extent that Part 3 of this article as in effect on and after July 1, 2001 provides that the law of a jurisdiction other than the jurisdiction in which the financing statement is filed governs perfection of a security interest in collateral covered by the financing statement.

(f) A financing statement that includes a financing statement filed before July 1, 2001 takes effect and a continuation statement filed on or after July 1, 2001 is effective only to the extent that it satisfies the requirements of Part 5 of this article as in effect on and after July 1, 2001 for an initial financing statement.

§ 9-706. WHEN INITIAL FINANCING STATEMENT SUFFICES AS CONTINUATION STATEMENT

(a) The filing of an initial financing statement in the office specified in Section 9-501 of this article as in effect on and after July 1, 2001, continues the effectiveness of a financing statement filed before July 1, 2001 for the period provided in Section 9-515 of this article as in effect on and after July 1, 2001, with respect to an initial financing statement if:

(1) the filing of an initial financing statement in that office would be effective to perfect a security interest under the provisions of this article as in effect on and after July 1, 2001;

(2) the preeffective-date financing statement was filed in an office in another state or another office in this state; and

(3) the initial financing statement satisfies subsection (c) of this section.

(b) Period of continued effectiveness. The filing of an initial financing statement under subsection (a) continues the effectiveness of the preffective-date financing statement:

(1) if the initial financing statement is filed before July 1, 2001, for the period provided in Section 9-403 as in effect prior to July 1, 2001, with respect to a financing statement; and

(2) if the financing statement is filed after July 1, 2001, for the period provided in Section 9-515 of this article as in effect on and after July 1, 2001, with respect to an initial financing statement.

(c) Requirements for initial financing statement under subsection (a) of this section. To be effective for purposes of subsection (a), an initial financing statement must:

(1) satisfy the requirements of Part 5 of this article for an initial financing statement;

(2) identify the preeffective-date financing statement by indicating the office in which the financing statement was filed, and providing the dates of filing and file numbers, if any, of the financing statement and of the most recent continuation statement filed with respect to the financing statement; and

(3) indicate that the preeffective-date financing statement remains effective.

§ 9-707. AMENDMENT OF PREEFFECTIVE-DATE FINANCING STATEMENT

(a) In this section and in Section 9-706 of this article, "preeffective-date financing statement" means a financing statement filed before July 1, 2001.

(b) After July 1, 2001, a person may add or delete collateral covered by, continue or terminate the effectiveness of, or otherwise amend the information provided in, a preeffective-date financing statement only in accordance with the law of the jurisdiction governing perfection as provided in Part 3 of this article on and after July 1, 2001. However, the effectiveness of a preeffective-date financing statement also may be terminated in accordance with the law of the jurisdiction in which the financing statement is filed.

(c) Except as otherwise provided in subsection (d) of this section, if the law of this state governs perfection of a security interest, the information in a preeffective-date financing statement may be amended after July 1, 2001 only if:

(1) the preeffective-date financing statement and an amendment are filed in the office specified in Section 9-501 of this article as in effect on and after July 1, 2001;

(2) an amendment is filed in the office specified in Section 9-501 of this article as in effect on and after July 1, 2001 concurrently with, or after the filing in that office of, an initial financing statement that satisfies Section 9-706(b) of this article; or

(3) an initial financing statement that provides the information as amended, and satisfies Section 9-706(b) of this article, is filed in the office specified in Section 9-501 of this article as in effect on and after July 1, 2001.

(d) If the law of this state governs perfection of a security interest, the effectiveness of a preeffective-date financing statement may be continued only under Section 9-705(d) and (f) or 9-706 of this article.

(e) Whether or not the law of this state governs perfection of a security interest, the effectiveness of a preeffective-date financing statement filed in this state may be terminated after July 1, 2001 by filing a termination statement in the office in which the preeffective-date financing statement is filed, unless an initial financing statement that satisfies Section 9-706(b) of this article has been filed in the office specified by the law of the jurisdiction governing perfection as provided in Part 3 of this article as in effect on and after July 1, 2001, as the office in which to file a financing statement.

§ 9-708. PERSONS ENTITLED TO FILE INITIAL FINANCING

STATEMENT OR CONTINUATION STATEMENT

A person may file an initial financing statement or a continuation statement under this part if:

(1) the secured party of record authorizes the filing; and

(2) the filing is necessary under this part:

(A) to continue the effectiveness of a financing statement filed before July 1, 2001; or

(B) to perfect or continue the perfection of a security interest.

§ 9-709. PRIORITY

(a) The provisions of this article as in effect prior to July 1, 2001 determine the priority of conflicting claims to collateral if the relative priorities of the parties were fixed before July 1, 2001. In other cases, the provisions of this article as in effect on and after July 1, 2001 determine priority.

(b) For purposes of Section 9-322(a) of this article as in effect on and after July 1, 2001, the priority of a security interest that becomes a perfected security interest under Section 9-704 of this article as in effect on and after July 1, 2001 dates from the time the applicable requirements for perfection are satisfied. This subsection does not apply to conflicting security interests, each of which becomes a perfected security interest under Section 9-704 of this article as in effect on and after July 1, 2001.

(c) For purposes of Section 9-322(a) of this article as in effect on and after July 1, 2001, the priority of a security interest that becomes enforceable under Section 9-203 of this article as in effect on and after July 1, 2001 dates from July 1, 2001 if the security interest is perfected under the provisions of this article as in effect on and after July 1, 2001 by the filing of a financing statement before July 1, 2001 which would not have been effective to perfect the security interest under the provisions of this article as in effect prior to July 1, 2001. This subsection does not apply to conflicting security interests, each of which is perfected by the filing of such a financing statement.

Sec. 13. 27A V.S.A. § 3-116(b)(3) is amended to read:

(3) liens for real estate taxes and other governmental assessments or charges against the unit. The lien is also prior to all security interests described in subdivision (2) of this subsection to the extent of the common expense assessments based on the periodic budget adopted by the association pursuant to subsection 3-115(a) of this title which would have become due in the absence of acceleration during the six months immediately preceding institution of an action to enforce the lien. This subsection does not affect the priority of mechanics’ or materialmen’s liens, or the priority of liens for other assessments made by the association. A lien under this section is not subject to the provisions of *[Article 3 of this title]* chapter 3 of Title 27.

Approved: June 1, 2001