2021 Delaware Code
Title 6 - Commerce and Trade
Subtitle I
Uniform Commercial Code
Subtitle II
Other Laws Relating to Commerce and Trade
Subtitle III
Weights, Measures and Standards
Subtitle IV
Commercial Development
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Legislative Council,
General Assembly
State of Delaware
Title 6
Commerce and Trade
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Title 6 - Commerce and Trade
Subtitle I
Uniform Commercial Code
Article 1
General Provisions
Part 1
General Provisions
§ 1-101. Short titles.
(a) This subtitle may be cited as the Uniform Commercial Code.
(b) This article may be cited as Uniform Commercial Code — General Provisions.
(5A Del. C. 1953, § 1-101; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 1.)
§ 1-102. Scope of article.
This article applies to a transaction to the extent that it is governed by another article of the Uniform Commercial Code.
(74 Del. Laws, c. 332, § 1.)
§ 1-103. Construction of Uniform Commercial Code to promote its purposes and policies; applicability of
supplemental principles of law.
(a) The Uniform Commercial Code must be liberally construed and applied to promote its underlying purposes and policies, which are:
(1) To simplify, clarify, and modernize the law governing commercial transactions;
(2) To permit the continued expansion of commercial practices through custom, usage, and agreement of the parties; and
(3) To make uniform the law among the various jurisdictions.
(b) 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.
(5A Del. C. 1953, § 1-102; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 1.)
§ 1-104. 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 shall be deemed
to be impliedly repealed by subsequent legislation if such construction can reasonably be avoided.
(74 Del. Laws, c. 332, § 1.)
§ 1-105. 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 which can be given effect without the invalid provision
or application, and to this end the provisions of the Uniform Commercial Code are severable.
(74 Del. Laws, c. 332, § 1.)
§ 1-106. 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.
(74 Del. Laws, c. 332, § 1.)
§ 1-107. Section captions.
Section captions are part of the Uniform Commercial Code.
(74 Del. Laws, c. 332, § 1.)
§ 1-108. Relation to Electronic Signatures in Global and National Commerce Act.
This subtitle modifies, limits, and supersedes the federal Electronic Signatures in Global and National Commerce Act, (15 U.S.C. §
7001, et seq.) but does not modify, limit, or supersede § 101(c) of that act (15 U.S.C. § 7001(c)) or authorize electronic delivery of any
of the notices described in § 103(b) of that act (15 U.S.C. § 7003(b)).
(74 Del. Laws, c. 332, § 1.)
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Part 2
General Definitions and Principles of Interpretation
§ 1-201. General definitions.
(a) 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.
(b) Subject to definitions contained in other articles of the Uniform Commercial Code that apply to particular articles or parts thereof:
(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 1-303.
(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.
(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 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. 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:
(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 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 third-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 of title” means a record (i) that in the regular course of business or financing 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 (ii) that purports to be issued by or addressed to a bailee and to cover goods in the bailee’s possession which 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 of title means a document of title evidenced
by a record consisting of information stored in an electronic medium. A tangible document of title means a document of title evidenced
by a record consisting of information that is inscribed on a tangible medium.
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(17) “Fault” means a default, breach, or wrongful act or omission.
(18) “Fungible goods” means:
(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.
(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:
(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) 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; or
(C) The person in control of a negotiable electronic document of title.
(22) “Insolvency proceeding” includes an assignment for the benefit of creditors or other proceeding intended to liquidate or
rehabilitate the estate of the person involved.
(23) “Insolvent” means:
(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.
(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 two or more countries.
(25) “Organization” means a person other than an individual.
(26) “Party”, as distinguished from “third 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, statutory trust, estate, trust, partnership, limited liability company,
association, joint venture, government, governmental subdivision, agency, or instrumentality, public corporation, any other legal or
commercial entity, or any series of any of the foregoing.
(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 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 § 2-401, but a buyer may also acquire a “security interest” by complying with
Article 9. Except as otherwise provided in § 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 § 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 § 1-203.
(36) “Send” 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 to be received any record or notice within the time it would have arrived if properly sent.
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(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.
(5A Del. C. 1953, § 1-201; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 2; 68 Del. Laws, c. 249, § 3; 70 Del. Laws, c. 86, § 1; 72
Del. Laws, c. 401, §§ 3-5; 73 Del. Laws, c. 329, § 5; 73 Del. Laws, c. 330, § 2; 74 Del. Laws, c. 332, § 1; 80 Del. Laws, c. 305, §
1; 81 Del. Laws, c. 353, § 1.)
§ 1-202. Notice; knowledge.
(a) Subject to subsection (f), a person has “notice” of a fact if the person:
(1) Has actual knowledge of it;
(2) Has received a notice or notification of it; or
(3) From all the facts and circumstances known to the person at the time in question, has reason to know that it exists.
(b) “Knowledge” means actual knowledge. “Knows” has a corresponding meaning.
(c) “Discover”, “learn”, or words of similar import refer to knowledge rather than to reason to know.
(d) 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 know of it.
(e) Subject to subsection (f), a person “receives” a notice or notification when:
(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.
(f) Notice, knowledge, 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 know of the transaction and that the transaction would be materially
affected by the information.
(5A Del. C. 1953, § 1-201; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 2; 68 Del. Laws, c. 249, § 3; 70 Del. Laws, c. 86, § 1; 72
Del. Laws, c. 401, §§ 3-5; 73 Del. Laws, c. 329, § 5; 73 Del. Laws, c. 330, § 2; 74 Del. Laws, c. 332, § 1.)
§ 1-203. Lease distinguished from security interest.
(a) Whether a transaction in the form of a lease creates a lease or security interest is determined by the facts of each case.
(b) 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:
(1) The original term of the lease is equal to or 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 or is 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 the goods for no additional consideration or for nominal additional consideration
upon compliance with the lease agreement.
(c) 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 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;
(2) The lessee assumes 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 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
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(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.
(d) 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:
(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 the 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.
(e) 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.
(74 Del. Laws, c. 332, § 1.)
§ 1-204. Value.
Except as otherwise provided in Articles 3, 4, and 5, 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.
(74 Del. Laws, c. 332, § 1.)
§ 1-205. Reasonable time; seasonableness.
(a) 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.
(b) 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.
(74 Del. Laws, c. 332, § 1.)
§ 1-206. 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 find the existence of the fact unless and until evidence is introduced that supports a finding of its nonexistence.
(74 Del. Laws, c. 332, § 1.)
Part 3
Territorial Applicability and General Rules
§ 1-301. Territorial applicability; parties’ power to choose applicable law.
(a) 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.
(b) In the absence of an agreement effective under subsection (a), and except as provided in subsection (c), the Uniform Commercial
Code applies to transactions bearing an appropriate relation to this state.
(c) 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:
(1) Section 2-402;
(2) Sections 2A-105 and 2A-106;
(3) Section 4-102;
(4) Section 4A-507;
(5) Section 5-116;
(6) Section 8-110;
(7) Sections 9-301 through 9-307.
(5A Del. C. 1953. § 1-105; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 1; 68 Del. Laws, c. 249, § 2; 68 Del. Laws, c. 430, § 2;
70 Del. Laws, c. 439, § 2; 71 Del. Laws, c. 75, § 16; 71 Del. Laws, c. 393, § 2; 72 Del. Laws, c. 401, § 2; 73 Del. Laws, c. 330, §
1; 74 Del. Laws, c. 332, § 1.)
§ 1-302. Variation by agreement.
(a) Except as otherwise provided in subsection (b) or elsewhere in the Uniform Commercial Code, the effect of provisions of the
Uniform Commercial Code may be varied by agreement.
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(b) 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 Uniform Commercial Code requires an action to be taken
within a reasonable time, a time that is not manifestly unreasonable may be fixed by agreement.
(c) 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.
(74 Del. Laws, c. 332, § 1.)
§ 1-303. Course of performance, course of dealing, and usage of trade.
(a) A “course of performance” is a sequence of conduct between the parties to a particular transaction 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.
(b) 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.
(c) 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.
(d) 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.
(e) 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 unreasonable:
(1) Express terms prevail over course of performance, course of dealing, and usage of trade;
(2) Course of performance prevails over course of dealing and usage of trade; and
(3) Course of dealing prevails over usage of trade.
(f) Subject to § 2-209, a course of performance is relevant to show a waiver or modification of any term inconsistent with the course
of performance.
(g) 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.
(5A Del. C. 1953, § 1-205; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 1.)
§ 1-304. Obligation of good faith.
Every contract or duty within the Uniform Commercial Code imposes an obligation of good faith in its performance and enforcement.
(5A Del. C. 1953, § 1-203; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 1.)
§ 1-305. Remedies to be liberally administered.
(a) 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.
(b) 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.
(5A Del. C. 1953, § 1-106; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 1.)
§ 1-306. 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.
(5A Del. C. 1953, § 1-107; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 1.)
§ 1-307. Prima facie evidence by third-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 third party is prima facie evidence of its
own authenticity and genuineness and of the facts stated in the document by the third party.
(5A Del. C. 1953, § 1-202; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 1.)
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§ 1-308. Performance or acceptance under reservation of rights.
(a) 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.
(b) Subsection (a) does not apply to an accord and satisfaction.
(5A Del. C. 1953, § 1-207; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 2; 74 Del. Laws, c. 332, § 1.)
§ 1-309. Option to accelerate at will.
A term providing that one party or that party’s successor in interest may accelerate payment or performance 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 performance is impaired. The burden of establishing lack
of good faith is on the party against which the power has been exercised.
(5A Del. C. 1953, § 1-208; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 1.)
§ 1-310. 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.
(74 Del. Laws, c. 332, § 1.)
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Subtitle I
Uniform Commercial Code
Article 2
Sales
Part 1
Short Title, General Construction and Subject Matter
§ 2-101. Short title.
This Article shall be known and may be cited as Uniform Commercial Code — Sales.
(5A Del. C. 1953, § 2-101; 55 Del. Laws, c. 349.)
§ 2-102. Scope; certain security and other transactions excluded from this article.
Unless the context otherwise requires, this Article applies to transactions in goods; it does not apply to any transaction which although
in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article
impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.
(5A Del. C. 1953, § 2-102; 55 Del. Laws, c. 349.)
§ 2-103. Definitions and index of definitions.
(1) In this Article unless the context otherwise requires:
(a) “Buyer” means a person who buys or contracts to buy goods.
(b) [Repealed.]
(c) “Receipt” of goods means taking physical possession of them.
(d) “Seller” means a person who sells or contracts to sell goods.
(2) Other definitions applying to this Article or to specified Parts thereof, and the sections in which they appear are:
“Acceptance”. Section 2-606.
“Banker’s credit”. Section 2-325.
“Between merchants”. Section 2-104.
“Cancellation”. Section 2-106(4).
“Commercial unit”. Section 2-105.
“Confirmed credit”. Section 2-325.
“Conforming to contract”. Section 2-106.
“Contract for sale”. Section 2-106.
“Cover”. Section 2-712.
“Entrusting”. Section 2-403.
“Financing agency”. Section 2-104.
“Future goods”. Section 2-105.
“Goods”. Section 2-105.
“Identification”. Section 2-501.
“Installment contract”. Section 2-612.
“Letter of Credit”. Section 2-325.
“Lot”. Section 2-105.
“Merchant”. Section 2-104.
“Overseas”. Section 2-323.
“Person in position of seller”. Section 2-707.
“Present sale”. Section 2-106.
“Sale”. Section 2-106.
“Sale on approval”. Section 2-326.
“Sale or return”. Section 2-326.
“Termination”. Section 2-106.
(3) “Control” as provided in § 7-106 and the following definitions in other Articles apply to this Article:
“Check”. Section 3-104.
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“Consignee”. Section 7-102.
“Consignor”. Section 7-102.
“Consumer goods”. Section 9-102.
“Dishonor”. Section 3-502.
“Draft”. Section 3-104.
(4) In addition Article 1 contains general definitions and principles of construction and interpretation applicable throughout this Article.
(5A Del. C. 1953, § 2-103; 55 Del. Laws, c. 349; 72 Del. Laws, c. 401, § 6; 74 Del. Laws, c. 332, §§ 2, 3.)
§ 2-104. Definitions: “merchant”; “between merchants”; “financing agency.”
(1) “Merchant” means a person who deals in goods of the kind or otherwise by his or her occupation holds himself or herself out as
having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be
attributed by his or her employment of an agent or broker or other intermediary who by his occupation holds himself or herself out as
having such knowledge or skill.
(2) “Financing agency” means a bank, finance company or other person who in the ordinary course of business makes advances against
goods or documents of title or who by arrangement with either the seller or the buyer intervenes in ordinary course to make or collect
payment due or claimed under the contract for sale, as by purchasing or paying the seller’s draft or making advances against it or by merely
taking it for collection whether or not documents of title accompany or are associated with the draft. “Financing agency” includes also a
bank or other person who similarly intervenes between persons who are in the position of seller and buyer in respect to the goods (§ 2-707).
(3) “Between merchants” means in any transaction with respect to which both parties are chargeable with the knowledge or skill of
merchants.
(5A Del. C. 1953, § 2-104; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1; 74 Del. Laws, c. 332, § 4.)
§ 2-105. Definitions: transferability; “goods”; “future goods”; “lot”; “commercial unit.”
(1) “Goods” means all things (including specially manufactured goods) which are movable at the time of identification to the contract
for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action. “Goods” also includes
the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be
severed from realty (Section 2-107).
(2) Goods must be both existing and identified before any interest in them can pass. Goods which are not both existing and identified
are “future” goods. A purported present sale of future goods or of any interest therein operates as a contract to sell.
(3) There may be a sale of a part interest in existing identified goods.
(4) An undivided share in an identified bulk of fungible goods is sufficiently identified to be sold although the quantity of the bulk is
not determined. Any agreed proportion of such a bulk or any quantity thereof agreed upon by number, weight or other measure may to
the extent of the seller’s interest in the bulk be sold to the buyer who then becomes an owner in common.
(5) “Lot” means a parcel or a single article which is the subject matter of a separate sale or delivery, whether or not it is sufficient
to perform the contract.
(6) “Commercial unit” means such a unit of goods as by commercial usage is a single whole for purposes of sale and division of which
materially impairs its character or value on the market or in use. A commercial unit may be a single article (as a machine) or a set of
articles (as a suite of furniture or an assortment of sizes) or a quantity (as a bale, gross, or carload) or any other unit treated in use or
in the relevant market as a single whole.
(5A Del. C. 1953, § 2-105; 55 Del. Laws, c. 349.)
§ 2-106. Definitions: “contract”; “agreement”; “contract for sale”; “sale”; “present sale”; “conforming” to
contract; “termination”; “cancellation.”
(1) In this Article unless the context otherwise requires “contract” and “agreement” are limited to those relating to the present or future
sale of goods. “Contract for sale” includes both a present sale of goods and a contract to sell goods at a future time. A “sale” consists
in the passing of title from the seller to the buyer for a price (Section 2-401). A “present sale” means a sale which is accomplished by
the making of the contract.
(2) Goods or conduct including any part of a performance are “conforming” or conform to the contract when they are in accordance
with the obligations under the contract.
(3) “Termination” occurs when either party pursuant to a power created by agreement or law puts an end to the contract otherwise
than for its breach. On “termination” all obligations which are still executory on both sides are discharged but any right based on prior
breach or performance survives.
(4) “Cancellation” occurs when either party puts an end to the contract for breach by the other and its effect is the same as that of
“termination” except that the cancelling party also retains any remedy for breach of the whole contract or any unperformed balance.
(5A Del. C. 1953, § 2-106; 55 Del. Laws, c. 349.)
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§ 2-107. Goods to be severed from realty; recording.
(1) A contract for the sale of minerals or the like (including oil and gas) or a structure or its materials to be removed from realty is a
contract for the sale of goods within this Article if they are to be severed by the seller but until severance a purported present sale thereof
which is not effective as a transfer of an interest in land is effective only as a contract to sell.
(2) A contract for the sale apart from the land of growing crops or other things attached to realty and capable of severance without
material harm thereto but not described in subsection (1) or of timber to be cut is a contract for the sale of goods within this Article
whether the subject matter is to be severed by the buyer or by the seller even though it forms part of the realty at the time of contracting,
and the parties can by identification effect a present sale before severance.
(3) The provisions of this section are subject to any third party rights provided by the law relating to realty records, and the contract
for sale may be executed and recorded as a document transferring an interest in land and shall then constitute notice to third parties of
the buyer’s rights under the contract for sale.
(5A Del. C. 1953, § 2-107; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 3.)
Part 2
Form, Formation and Readjustment of Contract
§ 2-201. Formal requirements; statute of frauds.
(1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by
way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties
and signed by the party against whom enforcement is sought or by his or her authorized agent or broker. A writing is not insufficient
because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity
of goods shown in such writing.
(2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received
and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written
notice of objection to its contents is given within ten days after it is received.
(3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable.
(a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the
seller’s business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the
goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or
(b) if the party against whom enforcement is sought admits in his or her pleading, testimony or otherwise in court that a contract for
sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or
(c) with respect to goods for which payment has been made and accepted or which have been received and accepted (Section 2-606).
(5A Del. C. 1953, § 2-201; 55 Del. Laws, c. 349; 70 Del Laws, c. 186, § 1.)
§ 2-202. Final written expression: parol or extrinsic evidence.
Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by
the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence
of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented
(a) By course of performance, course of dealing, or usage of trade (§ 1-303); and
(b) By evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and
exclusive statement of the terms of the agreement.
(5A Del. C. 1953, § 2-202; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 5.)
§ 2-203. Seals inoperative.
The affixing of a seal to a writing evidencing a contract for sale or an offer to buy or sell goods does not constitute the writing a sealed
instrument and the law with respect to sealed instruments does not apply to such a contract or offer.
(5A Del. C. 1953, § 2-203; 55 Del. Laws, c. 349.)
§ 2-204. Formation in general.
(1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which
recognizes the existence of such a contract.
(2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.
(3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make
a contract and there is a reasonably certain basis for giving an appropriate remedy.
(5A Del. C. 1953, § 2-204; 55 Del. Laws, c. 349.)
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§ 2-205. Firm offers.
An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not
revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period
of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by
the offeror.
(5A Del. C. 1953, § 2-205; 55 Del. Laws, c. 349.)
§ 2-206. Offer and acceptance in formation of contract.
(1) Unless otherwise unambiguously indicated by the language or circumstances
(a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the
circumstances;
(b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt
promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming
goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation
to the buyer.
(2) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance
within a reasonable time may treat the offer as having lapsed before acceptance.
(5A Del. C. 1953, § 2-206; 55 Del. Laws, c. 349.)
§ 2-207. Additional terms in acceptance or confirmation.
(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an
acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made
conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of
the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings
of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the
writings of the parties agree, together with any supplementary terms incorporated under this subtitle.
(5A Del. C. 1953, § 2-207; 55 Del. Laws, c. 349.)
§ 2-208. [Reserved.]
§ 2-209. Modification, rescission and waiver.
(1) An agreement modifying a contract within this Article needs no consideration to be binding.
(2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded,
but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.
(3) The requirements of the statute of frauds section of this Article (Section 2-201) must be satisfied if the contract as modified is
within its provisions.
(4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.
(5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification
received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of
a material change of position in reliance on the waiver.
(5A Del. C. 1953, § 2-209; 55 Del. Laws, c. 349.)
§ 2-210. Delegation of performance; assignment of rights.
(1) A party may perform his or her duty through a delegate unless otherwise agreed or unless the other party has a substantial interest in
having his or her original promisor perform or control the acts required by the contract. No delegation of performance relieves the party
delegating of any duty to perform or any liability for breach.
(2) Except as otherwise provided in Section 9-406, unless otherwise agreed all rights of either seller or buyer can be assigned except
where the assignment would materially change the duty of the other party, or increase materially the burden or risk imposed on him or her
by his or her contract, or impair materially his or her chance of obtaining return performance. A right to damages for breach of the whole
contract or a right arising out of the assignor’s due performance of his or her entire obligation can be assigned despite agreement otherwise.
(3) The creation, attachment, perfection, or enforcement of a security interest in the seller’s interest under a contract is not a transfer that
materially changes the duty of or increases materially the burden or risk imposed on the buyer or impairs materially the buyer’s chance of
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obtaining return performance within the purview of subsection (2) unless, and then only to the extent that, enforcement actually results in
a delegation of material performance of the seller. Even in that event, the creation, attachment, perfection, and enforcement of the security
interest remain effective, but (i) the seller is liable to the buyer for damages caused by the delegation to the extent that the damages could
not reasonably be prevented by the buyer, and (ii) a court having jurisdiction may grant other appropriate relief, including cancellation of
the contract for sale or an injunction against enforcement of the security interest or consummation of the enforcement.
(4) Unless the circumstances indicate the contrary a prohibition of assignment of “the contract” is to be construed as barring only the
delegation to the assignee of the assignor’s performance.
(5) An assignment of “the contract” or of “all my rights under the contract” or an assignment in similar general terms is an assignment of
rights and unless the language or the circumstances (as in an assignment for security) indicate the contrary, it is a delegation of performance
of the duties of the assignor and its acceptance by the assignee constitutes a promise by him or her to perform those duties. This promise
is enforceable by either the assignor or the other party to the original contract.
(6) The other party may treat any assignment which delegates performance as creating reasonable grounds for insecurity and may
without prejudice to his or her rights against the assignor demand assurances from the assignee (Section 2-609).
(5A Del. C. 1953, § 2-210; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1; 72 Del. Laws, c. 401, § 7.)
Part 3
General Obligation and Construction of Contract
§ 2-301. General obligations of parties.
The obligation of the seller is to transfer and deliver and that of the buyer is to accept and pay in accordance with the contract.
(5A Del. C. 1953, § 2-301; 55 Del. Laws, c. 349.)
§ 2-302. Unconscionable contract or clause.
(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made
the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may
so limit the application of any unconscionable clause as to avoid any unconscionable result.
(2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded
a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.
(5A Del. C. 1953, § 2-302; 55 Del. Laws, c. 349.)
§ 2-303. Allocation or division of risks.
Where this Article allocates a risk or a burden as between the parties “unless otherwise agreed”, the agreement may not only shift the
allocation but may also divide the risk or burden.
(5A Del. C. 1953, § 2-303; 55 Del. Laws, c. 349.)
§ 2-304. Price payable in money, goods, realty, or otherwise.
(1) The price can be made payable in money or otherwise. If it is payable in whole or in part in goods each party is a seller of the
goods which he or she is to transfer.
(2) Even though all or part of the price is payable in an interest in realty the transfer of the goods and the seller’s obligations with
reference to them are subject to this Article, but not the transfer of the interest in realty or the transferor’s obligations in connection
therewith.
(5A Del. C. 1953, § 2-304; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-305. Open price term.
(1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a
reasonable price at the time for delivery if
(a) nothing is said as to price; or
(b) the price is left to be agreed by the parties and they fail to agree; or
(c) the price to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is
not so set or recorded.
(2) A price to be fixed by the seller or by the buyer means a price for him or her to fix in good faith.
(3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may
at his or her option treat the contract as cancelled or himself or herself fix a reasonable price.
(4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no
contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time
of delivery and the seller must return any portion of the price paid on account.
(5A Del. C. 1953, § 2-305; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
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§ 2-306. Output, requirements and exclusive dealings.
(1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or
requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence
of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.
(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise
agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.
(5A Del. C. 1953, § 2-306; 55 Del. Laws, c. 349.)
§ 2-307. Delivery in single lot or several lots.
Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on
such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned
may be demanded for each lot.
(5A Del. C. 1953, § 2-307; 55 Del. Laws, c. 349.)
§ 2-308. Absence of specified place for delivery.
Unless otherwise agreed
(a) the place for delivery of goods is the seller’s place of business or if he or she has none his or her residence; but
(b) in a contract for sale of identified goods which to the knowledge of the parties at the time of contracting are in some other place,
that place is the place for their delivery; and
(c) documents of title may be delivered through customary banking channels.
(5A Del. C. 1953, § 2-308; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-309. Absence of specific time provisions; notice of termination.
(1) The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a
reasonable time.
(2) Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless
otherwise agreed may be terminated at any time by either party.
(3) Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received
by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable.
(5A Del. C. 1953, § 2-309; 55 Del. Laws, c. 349.)
§ 2-310. Open time for payment or running of credit; authority to ship under reservation.
Unless otherwise agreed
(a) payment is due at the time and place at which the buyer is to receive the goods even though the place of shipment is the place
of delivery; and
(b) if the seller is authorized to send the goods he or she may ship them under reservation, and may tender the documents of title,
but the buyer may inspect the goods after their arrival before payment is due unless such inspection is inconsistent with the terms of
the contract (Section 2-513); and
(c) if delivery is authorized and made by way of documents of title otherwise than by subsection (b) then payment is due regardless
of where the goods are to be received (i) at the time and place at which the buyer is to receive delivery of the tangible documents or
(ii) at the time the buyer is to receive delivery of the electronic documents and at the seller’s place of business or if none, the seller’s
residence; and
(d) where the seller is required or authorized to ship the goods on credit the credit period runs from the time of shipment but postdating the invoice or delaying its dispatch will correspondingly delay the starting of the credit period.
(5A Del. C. 1953, § 2-310; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1; 74 Del. Laws, c. 332, § 7.)
§ 2-311. Options and cooperation respecting performance.
(1) An agreement for sale which is otherwise sufficiently definite (subsection (3) of Section 2-204) to be a contract is not made invalid
by the fact that it leaves particulars of performance to be specified by one of the parties. Any such specification must be made in good
faith and within limits set by commercial reasonableness.
(2) Unless otherwise agreed specifications relating to assortment of the goods are at the buyer’s option and except as otherwise provided
in subsections (1)(c) and (3) of Section 2-319 specifications or arrangements relating to shipment are at the seller’s option.
(3) Where such specification would materially affect the other party’s performance but is not seasonably made or where one party’s
cooperation is necessary to the agreed performance of the other but is not seasonably forthcoming, the other party in addition to all other
remedies
(a) is excused for any resulting delay in his or her own performance; and
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Title 6 - Commerce and Trade
(b) may also either proceed to perform in any reasonable manner or after the time for a material part of his or her own performance
treat the failure to specify or to cooperate as a breach by failure to deliver or accept the goods.
(5A Del. C. 1953, § 2-311; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-312. Warranty of title and against infringement; buyer’s obligation against infringement.
(1) Subject to subsection (2) there is in a contract for sale a warranty by the seller that
(a) the title conveyed shall be good, and its transfer rightful; and
(b) the goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of
contracting has no knowledge.
(2) A warranty under subsection (1) will be excluded or modified only by specific language or by circumstances which give the buyer
reason to know that the person selling does not claim title in himself or herself or that he or she is purporting to sell only such right or
title as he or she or a third person may have.
(3) Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered
free of the rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must
hold the seller harmless against any such claim which arises out of compliance with the specifications.
(5A Del. C. 1953, § 2-312; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-313. Express warranties by affirmation, promise, description, sample.
(1) Express warranties by the seller are created as follows:
(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of
the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
(b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall
conform to the description.
(c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods
shall conform to the sample or model.
(2) It is not necessary to the creation of an express warranty that the seller use formal words such as “warrant” or “guarantee” or that
he or she have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to
be merely the seller’s opinion or commendation of the goods does not create a warranty.
(5A Del. C. 1953, § 2-313; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-314. Implied warranty; merchantability; usage of trade.
(1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale
if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed
either on the premises or elsewhere is a sale.
(2) Goods to be merchantable must be at least such as
(a) pass without objection in the trade under the contract description; and
(b) in the case of fungible goods, are of fair average quality within the description; and
(c) are fit for the ordinary purposes for which such goods are used; and
(d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units
involved; and
(e) are adequately contained, packaged, and labeled as the agreement may require; and
(f) conform to the promises or affirmations of fact made on the container or label if any.
(3) Unless excluded or modified (Section 2-316) other implied warranties may arise from course of dealing or usage of trade.
(5A Del. C. 1953, § 2-314; 55 Del. Laws, c. 349.)
§ 2-315. Implied warranty; fitness for particular purpose.
Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the
buyer is relying on the seller’s skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next
section an implied warranty that the goods shall be fit for such purpose.
(5A Del. C. 1953, § 2-315; 55 Del. Laws, c. 349.)
§ 2-316. Exclusion or modification of warranties.
(1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be
construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence
(Section 2-202) negation or limitation is inoperative to the extent that such construction is unreasonable.
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(2) Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention
merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion
must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that
“There are no warranties which extend beyond the description on the face hereof.”
(3) Notwithstanding subsection (2)
(a) unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like “as is”, “with all faults” or
other language which in common understanding calls the buyer’s attention to the exclusion of warranties and makes plain that there
is no implied warranty; and
(b) when the buyer before entering into the contract has examined the goods or the sample or model as fully as he or she desired or
has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances
to have revealed to him or her; and
(c) an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade.
(4) Remedies for breach of warranty can be limited in accordance with the provisions of this Article on liquidation or limitation of
damages and on contractual modification of remedy (Sections 2-718 and 2-719).
(5) The implied warranties of merchantability and fitness shall not be applicable to a contract for the sale of human blood, blood plasma
or other human tissue or organs from a blood bank or reservoir of such other tissues or organs. Such blood, blood plasma or tissue or
organs shall not for the purposes of this Article be considered commodities or goods subject to sale or barter, but shall be considered
as medical services.
(5A Del. C. 1953, § 2-316; 55 Del. Laws, c. 349; 55 Del. Laws, c. 391; 70 Del. Laws, c. 186, § 1.)
§ 2-317. Cumulation and conflict of warranties express or implied.
Warranties whether express or implied shall be construed as consistent with each other and as cumulative, but if such construction is
unreasonable the intention of the parties shall determine which warranty is dominant. In ascertaining that intention the following rules
apply:
(a) Exact or technical specifications displace an inconsistent sample or model or general language of description.
(b) A sample from an existing bulk displaces inconsistent general language of description.
(c) Express warranties displace inconsistent implied warranties other than an implied warranty of fitness for a particular purpose.
(5A Del. C. 1953, § 2-317; 55 Del. Laws, c. 349.)
§ 2-318. Third party beneficiaries of warranties express or implied.
A seller’s warranty whether express or implied extends to any natural person who may reasonably be expected to use, consume or be
affected by the goods and who is injured by breach of the warranty. A seller may not exclude or limit the operation of this section.
(5A Del. C. 1953, § 2-318; 55 Del. Laws, c. 349.)
§ 2-319. F.O.B. and F.A.S. terms.
(1) Unless otherwise agreed the term F.O.B. (which means “free on board”) at a named place, even though used only in connection
with the stated price, is a delivery term under which
(a) when the term is F.O.B. the place of shipment, the seller must at that place ship the goods in the manner provided in this Article
(Section 2-504) and bear the expense and risk of putting them into the possession of the carrier; or
(b) when the term is F.O.B. the place of destination, the seller must at his or her own expense and risk transport the goods to that
place and there tender delivery of them in the manner provided in this Article (Section 2-503);
(c) when under either (a) or (b) the term is also F.O.B. vessel, car or other vehicle, the seller must in addition at his or her own
expense and risk load the goods on board. If the term is F.O.B. vessel the buyer must name the vessel and in an appropriate case the
seller must comply with the provisions of this Article on the form of bill of lading (Section 2-323).
(2) Unless otherwise agreed the term F.A.S. vessel (which means “free alongside”) at a named port, even though used only in connection
with the stated price, is a delivery term under which the seller must
(a) at his or her own expense and risk deliver the goods alongside the vessel in the manner usual in that port or on a dock designated
and provided by the buyer; and
(b) obtain and tender a receipt for the goods in exchange for which the carrier is under a duty to issue a bill of lading.
(3) Unless otherwise agreed in any case falling within subsection (1) (a) or (c) or subsection (2) the buyer must seasonably give any
needed instructions for making delivery, including when the term is F.A.S. or F.O.B. the loading berth of the vessel and in an appropriate
case its name and sailing date. The seller may treat the failure of needed instructions as a failure of cooperation under this Article (Section
2-311). He or she may also at his or her option move the goods in any reasonable manner preparatory to delivery or shipment.
(4) Under the term F.O.B. vessel or F.A.S. unless otherwise agreed the buyer must make payment against tender of the required
documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents.
(5A Del. C. 1953, § 2-319; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
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Title 6 - Commerce and Trade
§ 2-320. C.I.F. and C. & F. terms.
(1) The term C.I.F. means that the price includes in a lump sum the cost of the goods and the insurance and freight to the named
destination. The term C. & F. or C.F. means that the price so includes cost and freight to the named destination.
(2) Unless otherwise agreed and even though used only in connection with the stated price and destination, the term C.I.F. destination
or its equivalent requires the seller at his or her own expense and risk to
(a) put the goods into the possession of a carrier at the port for shipment and obtain a negotiable bill or bills of lading covering the
entire transportation to the named destination; and
(b) load the goods and obtain a receipt from the carrier (which may be contained in the bill of lading) showing that the freight has
been paid or provided for; and
(c) obtain a policy or certificate of insurance, including any war risk insurance, of a kind and on terms then current at the port of
shipment in the usual amount, in the currency of the contract, shown to cover the same goods covered by the bill of lading and providing
for payment of loss to the order of the buyer or for the account of whom it may concern; but the seller may add to the price the amount
of the premium for any such war risk insurance; and
(d) prepare an invoice of the goods and procure any other documents required to effect shipment or to comply with the contract; and
(e) forward and tender with commercial promptness all the documents in due form and with any indorsement necessary to perfect
the buyer’s rights.
(3) Unless otherwise agreed the term C. & F. or its equivalent has the same effect and imposes upon the seller the same obligation and
risks as a C.I.F. term except the obligation as to insurance.
(4) Under the term C.I.F. or C. & F. unless otherwise agreed the buyer must make payment against tender of the required documents
and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents.
(5A Del. C. 1953, § 2-320; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-321. C.I.F. or C. & F.: “net landed weights”; “payment on arrival”; warranty of condition on arrival.
Under a contract containing a term C.I.F. or C. & F.
(1) Where the price is based on or is to be adjusted according to “net landed weights”, “delivered weights”, “out turn” quantity or
quality or the like, unless otherwise agreed the seller must reasonably estimate the price. The payment due on tender of the documents
called for by the contract is the amount so estimated, but after final adjustment of the price a settlement must be made with commercial
promptness.
(2) An agreement described in subsection (1) or any warranty of quality or condition of the goods on arrival places upon the seller
the risk of ordinary deterioration, shrinkage and the like in transportation but has no effect on the place or time of identification to the
contract for sale or delivery or on the passing of the risk of loss.
(3) Unless otherwise agreed where the contract provides for payment on or after arrival of the goods the seller must before payment
allow such preliminary inspection as is feasible; but if the goods are lost delivery of the documents and payment are due when the
goods should have arrived.
(5A Del. C. 1953, § 2-321; 55 Del. Laws, c. 349.)
§ 2-322. Delivery “ex-ship.”
(1) Unless otherwise agreed a term for delivery of goods “ex-ship” (which means from the carrying vessel) or in equivalent language
is not restricted to a particular ship and requires delivery from a ship which has reached a place at the named port of destination where
goods of the kind are usually discharged.
(2) Under such a term unless otherwise agreed
(a) the seller must discharge all liens arising out of the carriage and furnish the buyer with a direction which puts the carrier under
a duty to deliver the goods; and
(b) the risk of loss does not pass to the buyer until the goods leave the ship’s tackle or are otherwise properly unloaded.
(5A Del. C. 1953, § 2-322; 55 Del. Laws, c. 349.)
§ 2-323. Form of bill of lading required in overseas shipment; “overseas.”
(1) Where the contract contemplates overseas shipment and contains a term C.I.F. or C. & F. or F.O.B. vessel, the seller unless otherwise
agreed must obtain negotiable bill of lading stating that the goods have been loaded on board or, in the case of a term C.I.F. or C. &
F., received for shipment.
(2) Where in a case within subsection (1) a tangible bill of lading has been issued in a set of parts, unless otherwise agreed if the
documents are not to be sent from abroad the buyer may demand tender of the full set; otherwise only one part of the bill of lading need
be tendered. Even if the agreement expressly requires a full set
(a) Due tender of a single part is acceptable within the provisions of this Article on cure of improper delivery (subsection (1) of
§ 2-508); and
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Title 6 - Commerce and Trade
(b) Even though the full set is demanded, if the documents are sent from abroad the person tendering an incomplete set may
nevertheless require payment upon furnishing an indemnity which the buyer in good faith deems adequate.
(3) A shipment by water or by air or a contract contemplating such shipment is “overseas” insofar as by usage of trade or agreement it
is subject to the commercial, financing or shipping practices characteristic of international deep water commerce.
(5A Del. C. 1953, § 2-323; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 8.)
§ 2-324. “No arrival, no sale” term.
Under a term “no arrival, no sale” or terms of like meaning, unless otherwise agreed,
(a) the seller must properly ship conforming goods and if they arrive by any means he or she must tender them on arrival but he or
she assumes no obligation that the goods will arrive unless he or she has caused the non-arrival; and
(b) where without fault of the seller the goods are in part lost or have so deteriorated as no longer to conform to the contract or arrive
after the contract time, the buyer may proceed as if there had been casualty to identified goods (Section 2-613).
(5A Del. C. 1953, § 2-324; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-325. “Letter of credit” term; “confirmed credit.”
(1) Failure of the buyer seasonably to furnish an agreed letter of credit is a breach of the contract for sale.
(2) The delivery to seller of a proper letter of credit suspends the buyer’s obligation to pay. If the letter of credit is dishonored, the seller
may on seasonable notification to the buyer require payment directly from him or her.
(3) Unless otherwise agreed the term “letter of credit” or “banker’s credit” in a contract for sale means an irrevocable credit issued by
a financing agency of good repute and, where the shipment is overseas, of good international repute. The term “confirmed credit” means
that the credit must also carry the direct obligation of such an agency which does business in the seller’s financial market.
(5A Del. C. 1953, § 2-325; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-326. Sale on approval and sale or return; rights of creditors.
(1) Unless otherwise agreed, if delivered goods may be returned by the buyer even though they conform to the contract, the transaction is
(a) a “sale on approval” if the goods are delivered primarily for use, and
(b) a “sale or return” if the goods are delivered primarily for resale.
(2) Goods held on approval are not subject to the claims of the buyer’s creditors until acceptance; goods held on sale or return are
subject to such claims while in the buyer’s possession.
(3) Any “or return” term of a contract for sale is to be treated as a separate contract for sale within the statute of frauds section of
this Article (Section 2-201) and as contradicting the sale aspect of the contract within the provisions of this Article on parol or extrinsic
evidence (Section 2-202).
(5A Del. C. 1953, § 2-326; 55 Del. Laws, c. 349; 72 Del. Laws, c. 401, § 8.)
§ 2-327. Special incidents of sale on approval and sale or return.
(1) Under a sale on approval unless otherwise agreed
(a) although the goods are identified to the contract the risk of loss and the title do not pass to the buyer until acceptance; and
(b) use of the goods consistent with the purpose of trial is not acceptance but failure seasonably to notify the seller of election to
return the goods is acceptance, and if the goods conform to the contract acceptance of any part is acceptance of the whole; and
(c) after due notification of election to return, the return is at the seller’s risk and expense but a merchant buyer must follow any
reasonable instructions.
(2) Under a sale or return unless otherwise agreed
(a) the option to return extends to the whole or any commercial unit of the goods while in substantially their original condition, but
must be exercised seasonably; and
(b) the return is at the buyer’s risk and expense.
(5A Del. C. 1953, § 2-327; 55 Del. Laws, c. 349.)
§ 2-328. Sale by auction.
(1) In a sale by auction if goods are put up in lots each lot is the subject of a separate sale.
(2) A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner. Where
a bid is made while the hammer is falling in acceptance of a prior bid the auctioneer may in his or her discretion reopen the bidding or
declare the goods sold under the bid on which the hammer was falling.
(3) Such a sale is with reserve unless the goods are in explicit terms put up without reserve. In an auction with reserve the auctioneer
may withdraw the goods at any time until he or she announces completion of the sale. In an auction without reserve, after the auctioneer
calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time. In either case a
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Title 6 - Commerce and Trade
bidder may retract his or her bid until the auctioneer’s announcement of completion of the sale, but a bidder’s retraction does not revive
any previous bid.
(4) If the auctioneer knowingly receives a bid on the seller’s behalf or the seller makes or procures such a bid, and notice has not been
given that liberty for such bidding is reserved, the buyer may at his or her option avoid the sale or take the goods at the price of the last
good faith bid prior to the completion of the sale. This subsection shall not apply to any bid at a forced sale.
(5A Del. C. 1953, § 2-328; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
Part 4
Title, Creditors and Good Faith Purchases
§ 2-401. Passing of title; reservation for security; limited application of this section.
Each provision of this Article with regard to the rights, obligations and remedies of the seller, the buyer, purchasers or other third parties
applies irrespective of title to the goods except where the provision refers to such title. Insofar as situations are not covered by the other
provisions of this Article and matters concerning title become material the following rules apply:
(1) Title to goods cannot pass under a contract for sale prior to their identification to the contract (Section 2-501), and unless otherwise
explicitly agreed the buyer acquires by their identification a special property as limited by this subtitle. Any retention or reservation
by the seller of the title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a security interest.
Subject to these provisions and to the provisions of the Article on Secured Transactions (Article 9), title to goods passes from the seller
to the buyer in any manner and on any conditions explicitly agreed on by the parties.
(2) Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his or her
performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a
document of title is to be delivered at a different time or place; and in particular and despite any reservation of a security interest by
the bill of lading
(a) if the contract requires or authorizes the seller to send the goods to the buyer but does not require him or her to deliver them
at destination, title passes to the buyer at the time and place of shipment; but
(b) if the contract requires delivery at destination, title passes on tender there.
(3) Unless otherwise explicitly agreed where delivery is to be made without moving the goods,
(a) if the seller is to deliver a tangible document of title, title passes at the time when and the place where he or she delivers such
documents and if the seller is to deliver an electronic document of title, title passes when the seller delivers the document; or
(b) if the goods are at the time of contracting already identified and no documents of title are to be delivered, title passes at the
time and place of contracting.
(4) A rejection or other refusal by the buyer to receive or retain the goods, whether or not justified, or a justified revocation of
acceptance revests title to the goods in the seller. Such revesting occurs by operation of law and is not a “sale”.
(5A Del. C. 1953, § 2-401; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1; 74 Del. Laws, c. 332, § 9.)
§ 2-402. Rights of seller’s creditors against sold goods.
(1) Except as provided in subsections (2) and (3), rights of unsecured creditors of the seller with respect to goods which have been
identified to a contract for sale are subject to the buyer’s rights to recover the goods under this Article (Sections 2-502 and 2-716).
(2) A creditor of the seller may treat a sale or an identification of goods to a contract for sale as void if as against him or her a retention
of possession by the seller is fraudulent under any rule of law of the state where the goods are situated, except that retention of possession
in good faith and current course of trade by a merchant-seller for a commercially reasonable time after a sale or identification is not
fraudulent.
(3) Nothing in this Article shall be deemed to impair the rights of creditors of the seller
(a) under the provisions of the Article on Secured Transactions (Article 9); or
(b) where identification to the contract or delivery is made not in current course of trade but in satisfaction of or as security for a
pre-existing claim for money, security or the like and is made under circumstances which under any rule of law of the state where the
goods are situated would apart from this Article constitute the transaction a fraudulent transfer or voidable preference.
(5A Del. C. 1953, § 2-402; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-403. Power to transfer; good faith purchase of goods; “entrusting.”
(1) A purchaser of goods acquires all title which his or her transferor had or had power to transfer except that a purchaser of a limited
interest acquires rights only to the extent of the interest purchased. A person with voidable title has power to transfer a good title to a good
faith purchaser for value. When goods have been delivered under a transaction of purchase the purchaser has such power even though
(a) the transferor was deceived as to the identity of the purchaser, or
(b) the delivery was in exchange for a check which is later dishonored, or
(c) it was agreed that the transaction was to be a “cash sale”, or
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Title 6 - Commerce and Trade
(d) the delivery was procured through fraud punishable as larcenous under the criminal law.
(2) Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him or her power to transfer all rights
of the entruster to a buyer in ordinary course of business.
(3) “Entrusting” includes any delivery and any acquiescence in retention of possession regardless of any condition expressed between
the parties to the delivery or acquiescence and regardless of whether the procurement of the entrusting or the possessor’s disposition of
the goods have been such as to be larcenous under the criminal law.
(4) The rights of other purchasers of goods and of lien creditors are governed by the Articles on Secured Transactions (Article 9) and
Documents of Title (Article 7).
(5A Del. C. 1953, § 2-403; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1; 70 Del. Laws, c. 439, § 3.)
Part 5
Performance
§ 2-501. Insurable interest in goods; manner of identification of goods.
(1) The buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which
the contract refers even though the goods so identified are non-conforming and he or she has an option to return or reject them. Such
identification can be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement
identification occurs
(a) when the contract is made if it is for the sale of goods already existing and identified;
(b) if the contract is for the sale of future goods other than those described in paragraph (c), when goods are shipped, marked or
otherwise designated by the seller as goods to which the contract refers;
(c) when the crops are planted or otherwise become growing crops or the young are conceived if the contract is for the sale of unborn
young to be born within twelve months after contracting or for the sale of crops to be harvested within twelve months or the next
normal harvest season after contracting whichever is longer.
(2) The seller retains an insurable interest in goods so long as title to or any security interest in the goods remains in him or her and
where the identification is by the seller alone he or she may until default or insolvency or notification to the buyer that the identification
is final substitute other goods for those identified.
(3) Nothing in this section impairs any insurable interest recognized under any other statute or rule of law.
(5A Del. C. 1953, § 2-501; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-502. Buyer’s right to goods on seller’s repudiation, failure to deliver, or insolvency.
(1) Subject to subsections (2) and (3) and even though the goods have not been shipped, a buyer who has paid a part or all of the price
of goods in which he or she has a special property under the provisions of the immediately preceding section may on making and keeping
good a tender of any unpaid portion of their price recover them from the seller if:
(a) in the case of goods bought for personal, family, or household purposes, the seller repudiates or fails to deliver as required by
the contract; or
(b) in all cases, the seller becomes insolvent within ten days after receipt of the first installment on their price.
(2) The buyer’s right to recover the goods under subsection (1)(a) vests upon acquisition of a special property, even if the seller had
not then repudiated or failed to deliver.
(3) If the identification creating his or her special property has been made by the buyer he or she acquires the right to recover the goods
only if they conform to the contract for sale.
(5A Del. C. 1953, § 2-502; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1; 72 Del. Laws, c. 401, § 9.)
§ 2-503. Manner of seller’s tender of delivery.
(1) Tender of delivery requires that the seller put and hold conforming goods at the buyer’s disposition and give the buyer any
notification reasonably necessary to enable him or her to take delivery. The manner, time and place for tender are determined by the
agreement and this Article, and in particular
(a) tender must be at a reasonable hour, and if it is of goods they must be kept available for the period reasonably necessary to enable
the buyer to take possession; but
(b) unless otherwise agreed the buyer must furnish facilities reasonably suited to the receipt of the goods.
(2) Where the case is within the next section respecting shipment tender requires that the seller comply with its provisions.
(3) Where the seller is required to deliver at a particular destination tender requires that he or she comply with subsection (1) and also
in any appropriate case tender documents as described in subsections (4) and (5) of this section.
(4) Where goods are in the possession of a bailee and are to be delivered without being moved
(a) tender requires that the seller either tender a negotiable document of title covering such goods or procure acknowledgment by
the bailee of the buyer’s right to possession of the goods; but
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Title 6 - Commerce and Trade
(b) tender to the buyer of a non-negotiable document of title or of a record directing the bailee to deliver is sufficient tender unless
the buyer seasonably objects, and except as otherwise provided in Article 9 receipt by the bailee of notification of the buyer’s rights
fixes those rights as against the bailee and all third persons; but risk of loss of the goods and of any failure by the bailee to honor the
non-negotiable document of title or to obey the direction remains on the seller until the buyer has had a reasonable time to present the
document or direction, and a refusal by the bailee to honor the document or to obey the direction defeats the tender.
(5) Where the contract requires the seller to deliver documents
(a) he or she must tender all such documents in correct form, except as provided in this Article with respect to bills of lading in a
set (subsection (2) of Section 2-323); and
(b) tender through customary banking channels is sufficient and dishonor of a draft accompanying or associated with the documents
constitutes non-acceptance or rejection.
(5A Del. C. 1953, § 2-503; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1; 74 Del. Laws, c. 332, §§ 10, 11.)
§ 2-504. Shipment by seller.
Where the seller is required or authorized to send the goods to the buyer and the contract does not require him or her to deliver them
at a particular destination, then unless otherwise agreed he or she must
(a) put the goods in the possession of such a carrier and make such a contract for their transportation as may be reasonable having
regard to the nature of the goods and other circumstances of the case; and
(b) obtain and promptly deliver or tender in due form any document necessary to enable the buyer to obtain possession of the goods
or otherwise required by the agreement or by usage of trade; and
(c) promptly notify the buyer of the shipment.
Failure to notify the buyer under paragraph (c) or to make a proper contract under paragraph (a) is a ground for rejection only if material
delay or loss ensues.
(5A Del. C. 1953, § 2-504; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-505. Seller’s shipment under reservation.
(1) Where the seller has identified goods to the contract by or before shipment:
(a) his or her procurement of a negotiable bill of lading to his or her own order or otherwise reserves in him or her a security interest
in the goods. His or her procurement of the bill to the order of a financing agency or of the buyer indicates in addition only the seller’s
expectation of transferring that interest to the person named.
(b) a non-negotiable bill of lading to himself or herself or his or her nominee reserves possession of the goods as security but except
in a case of conditional delivery (subsection (2) of § 2-507) a non-negotiable bill of lading naming the buyer as consignee reserves no
security interest even though the seller retains possession or control of the bill of lading.
(2) When shipment by the seller with reservation of a security interest is in violation of the contract for sale it constitutes an improper
contract for transportation within the preceding section but impairs neither the rights given to the buyer by shipment and identification
of the goods to the contract nor the seller’s power as a holder of a negotiable document.
(5A Del. C. 1953, § 2-505; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1; 74 Del. Laws, c. 332, § 12.)
§ 2-506. Rights of financing agency.
(1) A financing agency by paying or purchasing for value a draft which relates to a shipment of goods acquires to the extent of the
payment or purchase and in addition to its own rights under the draft and any document of title securing it any rights of the shipper in the
goods including the right to stop delivery and the shipper’s right to have the draft honored by the buyer.
(2) The right to reimbursement of a financing agency which has in good faith honored or purchased the draft under commitment
to or authority from the buyer is not impaired by subsequent discovery of defects with reference to any relevant document which was
apparently regular.
(5A Del. C. 1953, § 2-506; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 13.)
§ 2-507. Effect of seller’s tender; delivery on condition.
(1) Tender of delivery is a condition to the buyer’s duty to accept the goods and, unless otherwise agreed, to his or her duty to pay for
them. Tender entitles the seller to acceptance of the goods and to payment according to the contract.
(2) Where payment is due and demanded on the delivery to the buyer of goods or documents of title, his or her right as against the
seller to retain or dispose of them is conditional upon his or her making the payment due.
(5A Del. C. 1953, § 2-507; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-508. Cure by seller of improper tender or delivery; replacement.
(1) Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet expired, the
seller may seasonably notify the buyer of his or her intention to cure and may then within the contract time make a conforming delivery.
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Title 6 - Commerce and Trade
(2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with
or without money allowance the seller may if he or she seasonably notifies the buyer have a further reasonable time to substitute a
conforming tender.
(5A Del. C. 1953, § 2-508; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-509. Risk of loss in the absence of breach.
(1) Where the contract requires or authorizes the seller to ship the goods by carrier
(a) if it does not require him or her to deliver them at a particular destination, the risk of loss passes to the buyer when the goods are
duly delivered to the carrier even though the shipment is under reservation (Section 2-505); but
(b) if it does require him or her to deliver them at a particular destination and the goods are there duly tendered while in the possession
of the carrier, the risk of loss passes to the buyer when the goods are there duly so tendered as to enable the buyer to take delivery.
(2) Where the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the buyer
(a) on the buyer’s receipt of possession or control of a negotiable document of title covering the goods; or
(b) on acknowledgment by the bailee of the buyer’s right to possession of the goods; or
(c) after his or her receipt of possession or control of a non-negotiable document of title or other direction to deliver in a record,
as provided in subsection (4)(b) of Section 2-503.
(3) In any case not within subsection (1) or (2), the risk of loss passes to the buyer on his or her receipt of the goods if the seller is a
merchant; otherwise the risk passes to the buyer on tender of delivery.
(4) The provisions of this section are subject to contrary agreement of the parties and to the provisions of this Article on sale on approval
(Section 2-327) and on effect of breach on risk of loss (Section 2-510).
(5A Del. C. 1953, § 2-509; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1; 74 Del. Laws, c. 332, § 14.)
§ 2-510. Effect of breach on risk of loss.
(1) Where a tender or delivery of goods so fails to conform to the contract as to give a right of rejection the risk of their loss remains
on the seller until cure or acceptance.
(2) Where the buyer rightfully revokes acceptance he or she may to the extent of any deficiency in his or her effective insurance
coverage treat the risk of loss as having rested on the seller from the beginning.
(3) Where the buyer as to conforming goods already identified to the contract for sale repudiates or is otherwise in breach before risk
of their loss has passed to him or her, the seller may to the extent of any deficiency in his or her effective insurance coverage treat the
risk of loss as resting on the buyer for a commercially reasonable time.
(5A Del. C. 1953, § 2-510; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-511. Tender of payment by buyer; payment by check.
(1) Unless otherwise agreed tender of payment is a condition to the seller’s duty to tender and complete any delivery.
(2) Tender of payment is sufficient when made by any means or in any manner current in the ordinary course of business unless the
seller demands payment in legal tender and gives any extension of time reasonably necessary to procure it.
(3) Subject to the provisions of this subtitle on the effect of an instrument on an obligation (Section 3-802 [see now Section 3-310]),
payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment.
(5A Del. C. 1953, § 2-511; 55 Del. Laws, c. 349.)
§ 2-512. Payment by buyer before inspection.
(1) Where the contract requires payment before inspection non-conformity of the goods does not excuse the buyer from so making
payment unless
(a) the non-conformity appears without inspection; or
(b) despite tender of the required documents the circumstances would justify injunction against honor under this subtitle (Section
5-109(b)).
(2) Payment pursuant to subsection (1) does not constitute an acceptance of goods or impair the buyer’s right to inspect or any of his
or her remedies.
(5A Del. C. 1953, § 2-512; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1; 71 Del. Laws, c. 393, § 3.)
§ 2-513. Buyer’s right to inspection of goods.
(1) Unless otherwise agreed and subject to subsection (3), where goods are tendered or delivered or identified to the contract for sale,
the buyer has a right before payment or acceptance to inspect them at any reasonable place and time and in any reasonable manner. When
the seller is required or authorized to send the goods to the buyer, the inspection may be after their arrival.
(2) Expenses of inspection must be borne by the buyer but may be recovered from the seller if the goods do not conform and are rejected.
(3) Unless otherwise agreed and subject to the provisions of this Article on C.I.F. contracts (subsection (3) of Section 2-321), the buyer
is not entitled to inspect the goods before payment of the price when the contract provides
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Title 6 - Commerce and Trade
(a) for delivery “C.O.D.” or on other like terms; or
(b) for payment against documents of title, except where such payment is due only after the goods are to become available for
inspection.
(4) A place or method of inspection fixed by the parties is presumed to be exclusive but unless otherwise expressly agreed it does
not postpone identification or shift the place for delivery or for passing the risk of loss. If compliance becomes impossible, inspection
shall be as provided in this section unless the place or method fixed was clearly intended as an indispensable condition failure of which
avoids the contract.
(5A Del. C. 1953, § 2-513; 55 Del. Laws, c. 349.)
§ 2-514. When documents deliverable on acceptance; when on payment.
Unless otherwise agreed documents against which a draft is drawn are to be delivered to the drawee on acceptance of the draft if it is
payable more than three days after presentment; otherwise, only on payment.
(5A Del. C. 1953, § 2-514; 55 Del. Laws, c. 349.)
§ 2-515. Preserving evidence of goods in dispute.
In furtherance of the adjustment of any claim or dispute
(a) either party on reasonable notification to the other and for the purpose of ascertaining the facts and preserving evidence has the
right to inspect, test and sample the goods including such of them as may be in the possession or control of the other; and
(b) the parties may agree to a third party inspection or survey to determine the conformity or condition of the goods and may agree
that the findings shall be binding upon them in any subsequent litigation or adjustment.
(5A Del. C. 1953, § 2-515; 55 Del. Laws, c. 349.)
Part 6
Breach, Repudiation and Excuse
§ 2-601. Buyer’s rights on improper delivery.
Subject to the provisions of this Article on breach in installment contracts (Section 2-612) and unless otherwise agreed under the
sections on contractual limitations of remedy (Sections 2-718 and 2-719), if the goods or the tender of delivery fail in any respect to
conform to the contract, the buyer may
(a) reject the whole; or
(b) accept the whole; or
(c) accept any commercial unit or units and reject the rest.
(5A Del. C. 1953, § 2-601; 55 Del. Laws, c. 349.)
§ 2-602. Manner and effect of rightful rejection.
(1) Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably
notifies the seller.
(2) Subject to the provisions of the two following sections on rejected goods (Sections 2-603 and 2-604),
(a) after rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller; and
(b) if the buyer has before rejection taken physical possession of goods in which he or she does not have a security interest under
the provisions of this Article (subsection (3) of Section 2-711), he or she is under a duty after rejection to hold them with reasonable
care at the seller’s disposition for a time sufficient to permit the seller to remove them; but
(c) the buyer has no further obligations with regard to goods rightfully rejected.
(3) The seller’s rights with respect to goods wrongfully rejected are governed by the provisions of this Article on Seller’s remedies
in general (Section 2-703).
(5A Del. C. 1953, § 2-602; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-603. Merchant buyer’s duties as to rightfully rejected goods.
(1) Subject to any security interest in the buyer (subsection (3) of Section 2-711), when the seller has no agent or place of business at the
market of rejection a merchant buyer is under a duty after rejection of goods in his or her possession or control to follow any reasonable
instructions received from the seller with respect to the goods and in the absence of such instructions to make reasonable efforts to sell
them for the seller’s account if they are perishable or threaten to decline in value speedily. Instructions are not reasonable if on demand
indemnity for expenses is not forthcoming.
(2) When the buyer sells goods under subsection (1), he or she is entitled to reimbursement from the seller or out of the proceeds for
reasonable expenses of caring for and selling them, and if the expenses include no selling commission then to such commission as is usual
in the trade or if there is none to a reasonable sum not exceeding ten per cent on the gross proceeds.
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Title 6 - Commerce and Trade
(3) In complying with this section the buyer is held only to good faith and good faith conduct hereunder is neither acceptance nor
conversion nor the basis of an action for damages.
(5A Del. C. 1953, § 2-603; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-604. Buyer’s options as to salvage of rightfully rejected goods.
Subject to the provisions of the immediately preceding section on perishables, if the seller gives no instructions within a reasonable
time after notification of rejection the buyer may store the rejected goods for the seller’s account or reship them to him or her or resell
them for the seller’s account with reimbursement as provided in the preceding section. Such action is not acceptance or conversion.
(5A Del. C. 1953, § 2-604; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-605. Waiver of buyer’s objections by failure to particularize.
(1) The buyer’s failure to state in connection with rejection a particular defect which is ascertainable by reasonable inspection precludes
him or her from relying on the unstated defect to justify rejection or to establish breach
(a) where the seller could have cured it if stated seasonably; or
(b) between merchants when the seller has after rejection made a request in writing for a full and final written statement of all defects
on which the buyer proposes to rely.
(2) Payment against documents made without reservation of rights precludes recovery of the payment for defects apparent in the
documents.
(5A Del. C. 1953, § 2-605; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1; 74 Del. Laws, c. 332, § 15.)
§ 2-606. What constitutes acceptance of goods.
(1) Acceptance of goods occurs when the buyer
(a) after a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he or she will take
or retain them in spite of their non-conformity; or
(b) fails to make an effective rejection (subsection (1) of Section 2-602), but such acceptance does not occur until the buyer has had
a reasonable opportunity to inspect them; or
(c) does any act inconsistent with the seller’s ownership; but if such act is wrongful as against the seller it is an acceptance only
if ratified by him or her.
(2) Acceptance of a part of any commercial unit is acceptance of that entire unit.
(5A Del. C. 1953, § 2-606; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-607. Effect of acceptance; notice of breach; burden of establishing breach after acceptance; notice of
claim or litigation to person answerable over.
(1) The buyer must pay at the contract rate for any goods accepted.
(2) Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a non-conformity
cannot be revoked because of it unless the acceptance was on the reasonable assumption that the non-conformity would be seasonably
cured but acceptance does not of itself impair any other remedy provided by this Article for non-conformity.
(3) Where a tender has been accepted
(a) the buyer must within a reasonable time after he or she discovers or should have discovered any breach notify the seller of breach
or be barred from any remedy; and
(b) if the claim is one for infringement or the like (subsection (3) of Section 2-312) and the buyer is sued as a result of such a breach
he or she must so notify the seller within a reasonable time after he or she receives notice of the litigation or be barred from any remedy
over for liability established by the litigation.
(4) The burden is on the buyer to establish any breach with respect to the goods accepted.
(5) Where the buyer is sued for breach of a warranty or other obligation for which his or her seller is answerable over
(a) he or she may give his or her seller written notice of the litigation. If the notice states that the seller may come in and defend and
that if the seller does not do so he or she will be bound in any action against him or her by his or her buyer by any determination of fact
common to the two litigations, then unless the seller after seasonable receipt of the notice does come in and defend he or she is so bound.
(b) if the claim is one for infringement or the like (subsection (3) of Section 2-312) the original seller may demand in writing that
his or her buyer turn over to him or her control of the litigation including settlement or else be barred from any remedy over and if he
or she also agrees to bear all expense and to satisfy any adverse judgment, then unless the buyer after seasonable receipt of the demand
does turn over control the buyer is so barred.
(6) The provisions of subsections (3), (4) and (5) apply to any obligation of a buyer to hold the seller harmless against infringement
or the like (subsection (3) of Section 2-312).
(5A Del. C. 1953, § 2-607; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
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Title 6 - Commerce and Trade
§ 2-608. Revocation of acceptance in whole or in part.
(1) The buyer may revoke his or her acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to
him or her if he or she has accepted it
(a) on the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or
(b) without discovery of such non-conformity if his or her acceptance was reasonably induced either by the difficulty of discovery
before acceptance or by the seller’s assurances.
(2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for
it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer
notifies the seller of it.
(3) A buyer who so revokes has the same rights and duties with regard to the goods involved as if he or she had rejected them.
(5A Del. C. 1953, § 2-608; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-609. Right to adequate assurance of performance.
(1) A contract for sale imposes an obligation on each party that the other’s expectation of receiving due performance will not be impaired.
When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate
assurance of due performance and until he or she receives such assurance may if commercially reasonable suspend any performance for
which he or she has not already received the agreed return.
(2) Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined
according to commercial standards.
(3) Acceptance of any improper delivery or payment does not prejudice the aggrieved party’s right to demand adequate assurance of
future performance.
(4) After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due
performance as is adequate under the circumstances of the particular case is a repudiation of the contract.
(5A Del. C. 1953, § 2-609; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-610. Anticipatory repudiation.
When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value
of the contract to the other, the aggrieved party may
(a) for a commercially reasonable time await performance by the repudiating party; or
(b) resort to any remedy for breach (Section 2-703 or Section 2-711), even though he or she has notified the repudiating party that
he or she would await the latter’s performance and has urged retraction; and
(c) in either case suspend his or her own performance or proceed in accordance with the provisions of this Article on the seller’s
right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (Section 2-704).
(5A Del. C. 1953, § 2-610; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-611. Retraction of anticipatory repudiation.
(1) Until the repudiating party’s next performance is due he or she can retract his or her repudiation unless the aggrieved party has since
the repudiation cancelled or materially changed his or her position or otherwise indicated that he or she considers the repudiation final.
(2) Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but
must include any assurance justifiably demanded under the provisions of this Article (Section 2-609).
(3) Retraction reinstates the repudiating party’s rights under the contract with due excuse and allowance to the aggrieved party for any
delay occasioned by the repudiation.
(5A Del. C. § 2-611; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-612. “Installment contract”; breach.
(1) An “installment contract” is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even
though the contract contains a clause “each delivery is a separate contract” or its equivalent.
(2) The buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that
installment and cannot be cured or if the non-conformity is a defect in the required documents; but if the non-conformity does not fall
within subsection (3) and the seller gives adequate assurance of its cure the buyer must accept that installment.
(3) Whenever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract
there is a breach of the whole. But the aggrieved party reinstates the contract if he or she accepts a non-conforming installment without
seasonably notifying of cancellation or if he or she brings an action with respect only to past installments or demands performance as
to future installments.
(5A Del. C. 1953, § 2-612; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
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Title 6 - Commerce and Trade
§ 2-613. Casualty to identified goods.
Where the contract requires for its performance goods identified when the contract is made, and the goods suffer casualty without fault
of either party before the risk of loss passes to the buyer, or in a proper case under a “no arrival, no sale” term (Section 2-324) then
(a) if the loss is total the contract is avoided; and
(b) if the loss is partial or the goods have so deteriorated as no longer to conform to the contract the buyer may nevertheless demand
inspection and at his or her option either treat the contract as avoided or accept the goods with due allowance from the contract price
for the deterioration or the deficiency in quantity but without further right against the seller.
(5A Del. C. 1953, § 2-613; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-614. Substituted performance.
(1) Where without fault of either party the agreed berthing, loading, or unloading facilities fail or an agreed type of carrier becomes
unavailable or the agreed manner of delivery otherwise becomes commercially impracticable but a commercially reasonable substitute
is available, such substitute performance must be tendered and accepted.
(2) If the agreed means or manner of payment fails because of domestic or foreign governmental regulation, the seller may withhold
or stop delivery unless the buyer provides a means or manner of payment which is commercially a substantial equivalent. If delivery
has already been taken, payment by the means or in the manner provided by the regulation discharges the buyer’s obligation unless the
regulation is discriminatory, oppressive or predatory.
(5A Del. C. 1953, § 2-614; 55 Del. Laws, c. 349.)
§ 2-615. Excuse by failure of presupposed conditions.
Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance:
(a) Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of
his or her duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the
non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable
foreign or domestic governmental regulation or order whether or not it later proves to be invalid.
(b) Where the causes mentioned in paragraph (a) affect only a part of the seller’s capacity to perform, he or she must allocate
production and deliveries among his or her customers but may at his or her option include regular customers not then under contract
as well as his or her own requirements for further manufacture. He or she may so allocate in any manner which is fair and reasonable.
(c) The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required under
paragraph (b), of the estimated quota thus made available for the buyer.
(5A Del. C. 1953, § 2-615; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-616. Procedure on notice claiming excuse.
(1) Where the buyer receives notification of a material or indefinite delay or an allocation justified under the preceding section he or
she may by written notification to the seller as to any delivery concerned, and where the prospective deficiency substantially impairs
the value of the whole contract under the provisions of this Article relating to breach of installment contracts (Section 2-612), then also
as to the whole,
(a) terminate and thereby discharge any unexecuted portion of the contract; or
(b) modify the contract by agreeing to take his or her available quota in substitution.
(2) If after receipt of such notification from the seller the buyer fails so to modify the contract within a reasonable time not exceeding
thirty days the contract lapses with respect to any deliveries affected.
(3) The provisions of this section may not be negated by agreement except in so far as the seller has assumed a greater obligation
under the preceding section.
(5A Del. C. 1953, § 2-616; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
Part 7
Remedies
§ 2-701. Remedies for breach of collateral contracts not impaired.
Remedies for breach of any obligation or promise collateral or ancillary to a contract for sale are not impaired by the provisions of
this Article.
(5A Del. C. 1953, § 2-701; 55 Del. Laws, c. 349.)
§ 2-702. Seller’s remedies on discovery of buyer’s insolvency.
(1) Where the seller discovers the buyer to be insolvent he or she may refuse delivery except for cash including payment for all goods
theretofore delivered under the contract, and stop delivery under this Article (Section 2-705).
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Title 6 - Commerce and Trade
(2) Where the seller discovers that the buyer has received goods on credit while insolvent he or she may reclaim the goods upon demand
made within ten days after the receipt, but if misrepresentation of solvency has been made to the particular seller in writing within three
months before delivery the ten day limitation does not apply. Except as provided in this subsection the seller may not base a right to
reclaim goods on the buyer’s fraudulent or innocent misrepresentation of solvency or of intent to pay.
(3) The seller’s right to reclaim under subsection (2) is subject to the rights of a buyer in ordinary course or other good faith purchaser
or lien creditor under this Article (Section 2-403). Successful reclamation of goods excludes all other remedies with respect to them.
(5A Del. C. 1953, § 2-702; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-703. Seller’s remedies in general.
Where the buyer wrongfully rejects or revokes acceptance of goods or fails to make a payment due on or before delivery or repudiates
with respect to a part or the whole, then with respect to any goods directly affected and, if the breach is of the whole contract (Section
2-612), then also with respect to the whole undelivered balance, the aggrieved seller may
(a) withhold delivery of such goods;
(b) stop delivery by any bailee as hereafter provided (Section 2-705);
(c) proceed under the next section respecting goods still unidentified to the contract;
(d) resell and recover damages as hereafter provided (Section 2-706);
(e) recover damages for non-acceptance (Section 2-708) or in a proper case the price (Section 2-709);
(f) cancel.
(5A Del. C. 1953, § 2-703; 55 Del. Laws, c. 349.)
§ 2-704. Seller’s right to identify goods to the contract notwithstanding breach or to salvage unfinished
goods.
(1) An aggrieved seller under the preceding section may
(a) identify to the contract conforming goods not already identified if at the time he or she learned of the breach they are in his or
her possession or control;
(b) treat as the subject of resale goods which have demonstrably been intended for the particular contract even though those goods
are unfinished.
(2) Where the goods are unfinished an aggrieved seller may in the exercise of reasonable commercial judgment for the purposes
of avoiding loss and of effective realization either complete the manufacture and wholly identify the goods to the contract or cease
manufacture and resale for scrap or salvage value or proceed in any other reasonable manner.
(5A Del. C. 1953, § 2-704; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-705. Seller’s stoppage of delivery in transit or otherwise.
(1) The seller may stop delivery of goods in the possession of a carrier or other bailee when he or she discovers the buyer to be insolvent
(Section 2-702) and may stop delivery of carload, truckload, planeload or larger shipments of express or freight when the buyer repudiates
or fails to make a payment due before delivery or if for any other reason the seller has a right to withhold or reclaim the goods.
(2) As against such buyer the seller may stop delivery until
(a) receipt of the goods by the buyer; or
(b) acknowledgment to the buyer by any bailee of the goods except a carrier that the bailee holds the goods for the buyer; or
(c) such acknowledgment to the buyer by a carrier by reshipment or as a warehouse; or
(d) negotiation to the buyer of any negotiable document of title covering the goods.
(3) (a) To stop delivery the seller must so notify as to enable the bailee by reasonable diligence to prevent delivery of the goods.
(b) After such notification the bailee must hold and deliver the goods according to the directions of the seller but the seller is liable
to the bailee for any ensuing charges or damages.
(c) If a negotiable document of title has been issued for goods the bailee is not obliged to obey a notification to stop until surrender
of possession or control of the document.
(d) A carrier who has issued a non-negotiable bill of lading is not obliged to obey a notification to stop received from a person
other than the consignor.
(5A Del. C. 1953, § 2-705; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1; 74 Del. Laws, c. 332, §§ 16, 17.)
§ 2-706. Seller’s resale including contract for resale.
(1) Under the conditions stated in Section 2-703 on seller’s remedies, the seller may resell the goods concerned or the undelivered
balance thereof. Where the resale is made in good faith and in a commercially reasonable manner the seller may recover the difference
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Title 6 - Commerce and Trade
between the resale price and the contract price together with any incidental damages allowed under the provisions of this Article (Section
2-710), but less expenses saved in consequence of the buyer’s breach.
(2) Except as otherwise provided in subsection (3) or unless otherwise agreed resale may be at public or private sale including sale by
way of one or more contracts to sell or of identification to an existing contract of the seller. Sale may be as a unit or in parcels and at any
time and place and on any terms but every aspect of the sale including the method, manner, time, place and terms must be commercially
reasonable. The resale must be reasonably identified as referring to the broken contract, but it is not necessary that the goods be in existence
or that any or all of them have been identified to the contract before the breach.
(3) Where the resale is at private sale the seller must give the buyer reasonable notification of his or her intention to resell.
(4) Where the resale is at public sale
(a) only identified goods can be sold except where there is a recognized market for a public sale of futures in goods of the kind; and
(b) it must be made at a usual place or market for public sale if one is reasonably available and except in the case of goods which are
perishable or threaten to decline in value speedily the seller must give the buyer reasonable notice of the time and place of the resale; and
(c) if the goods are not to be within the view of those attending the sale the notification of sale must state the place where the goods
are located and provide for their reasonable inspection by prospective bidders; and
(d) the seller may buy.
(5) A purchaser who buys in good faith at a resale takes the goods free of any rights of the original buyer even though the seller fails
to comply with one or more of the requirements of this section.
(6) The seller is not accountable to the buyer for any profit made on any resale. A person in the position of a seller (Section 2-707) or
a buyer who has rightfully rejected or justifiably revoked acceptance must account for any excess over the amount of his or her security
interest, as hereinafter defined (subsection (3) of Section 2-711).
(5A Del. C. 1953, § 2-706; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-707. “Person in the position of a seller.”
(1) A “person in the position of a seller” includes as against a principal an agent who has paid or become responsible for the price of
goods on behalf of his or her principal or anyone who otherwise holds a security interest or other right in goods similar to that of a seller.
(2) A person in the position of a seller may as provided in this Article withhold or stop delivery (Section 2-705) and resell (Section
2-706) and recover incidental damages (Section 2-710).
(5A Del. C. 1953, § 2-707; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-708. Seller’s damages for non-acceptance or repudiation.
(1) Subject to subsection (2) and to the provisions of this Article with respect to proof of market price (Section 2-723), the measure
of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender
and the unpaid contract price together with any incidental damages provided in this Article (Section 2-710), but less expenses saved in
consequence of the buyer’s breach.
(2) If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have
done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance
by the buyer, together with any incidental damages provided in this Article (Section 2-710), due allowance for costs reasonably incurred
and due credit for payments or proceeds of resale.
(5A Del. C. 1953, § 2-708; 55 Del. Laws, c. 349.)
§ 2-709. Action for the price.
(1) When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under the
next section, the price
(a) of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has
passed to the buyer; and
(b) of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the
circumstances reasonably indicate that such effort will be unavailing.
(2) Where the seller sues for the price he or she must hold for the buyer any goods which have been identified to the contract and are still
in his or her control except that if resale becomes possible he or she may resell them at any time prior to the collection of the judgment.
The net proceeds of any such resale must be credited to the buyer and payment of the judgment entitles him or her to any goods not resold.
(3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated
(Section 2-610), a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance
under the preceding section.
(5A Del. C. 1953, § 2-709; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
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Title 6 - Commerce and Trade
§ 2-710. Seller’s incidental damages.
Incidental damages to an aggrieved seller include any commercially reasonable charges, expenses or commissions incurred in stopping
delivery, in the transportation, care and custody of goods after the buyer’s breach, in connection with return or resale of the goods or
otherwise resulting from the breach.
(5A Del. C. 1953, § 2-710; 55 Del. Laws, c. 349.)
§ 2-711. Buyer’s remedies in general; buyer’s security interest in rejected goods.
(1) Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance then with
respect to any goods involved, and with respect to the whole if the breach goes to the whole contract (Section 2-612), the buyer may
cancel and whether or not he or she has done so may in addition to recovering so much of the price as has been paid
(a) “cover” and have damages under the next section as to all the goods, affected whether or not they have been identified to the
contract; or
(b) recover damages for non-delivery as provided in this Article (Section 2-713).
(2) Where the seller fails to deliver or repudiates the buyer may also
(a) if the goods have been identified recover them as provided in this Article (Section 2-502); or
(b) in a proper case obtain specific performance or replevy the goods as provided in this Article (Section 2-716).
(3) On rightful rejection or justifiable revocation of acceptance a buyer has a security interest in goods in his or her possession or control
for any payments made on their price and any expenses reasonably incurred in their inspection, receipt, transportation, care and custody
and may hold such goods and resell them in like manner as an aggrieved seller (Section 2-706).
(5A Del. C. 1953, § 2-711; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-712. “Cover”; buyer’s procurement of substitute goods.
(1) After a breach within the preceding section the buyer may “cover” by making in good faith and without unreasonable delay any
reasonable purchase of or contract to purchase goods in substitution for those due from the seller.
(2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any
incidental or consequential damages as hereinafter defined (Section 2-715), but less expenses saved in consequence of the seller’s breach.
(3) Failure of the buyer to effect cover within this section does not bar him or her from any other remedy.
(5A Del. C. 1953, § 2-712; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-713. Buyer’s damages for non-delivery or repudiation.
(1) Subject to the provisions of this Article with respect to proof of market price (Section 2-723), the measure of damages for nondelivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the
contract price together with any incidental and consequential damages provided in this Article (Section 2-715), but less expenses saved
in consequence of the seller’s breach.
(2) Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as
of the place of arrival.
(5A Del. C. 1953, § 2-713; 55 Del. Laws, c. 349.)
§ 2-714. Buyer’s damages for breach in regard to accepted goods.
(1) Where the buyer has accepted goods and given notification (subsection (3) of Section 2-607) he or she may recover as damages
for any non-conformity of tender the loss resulting in the ordinary course of events from the seller’s breach as determined in any manner
which is reasonable.
(2) The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the
goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages
of a different amount.
(3) In a proper case any incidental and consequential damages under the next section may also be recovered.
(5A Del. C. 1953, § 2-714; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-715. Buyer’s incidental and consequential damages.
(1) Incidental damages resulting from the seller’s breach include expenses reasonably incurred in inspection, receipt, transportation
and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with
effecting cover and any other reasonable expense incident to the delay or other breach.
(2) Consequential damages resulting from the seller’s breach include
(a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to
know and which could not reasonably be prevented by cover or otherwise; and
(b) injury to person or property proximately resulting from any breach of warranty.
(5A Del. C. 1953, § 2-715; 55 Del. Laws, c. 349.)
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§ 2-716. Buyer’s right to specific performance or replevin.
(1) Specific performance may be decreed where the goods are unique or in other proper circumstances.
(2) The decree for specific performance may include such terms and conditions as to payment of the price, damages, or other relief
as the court may deem just.
(3) The buyer has a right of replevin for goods identified to the contract if after reasonable effort he or she is unable to effect cover
for such goods or the circumstances reasonably indicate that such effort will be unavailing or if the goods have been shipped under
reservation and satisfaction of the security interest in them has been made or tendered. In the case of goods bought for personal, family,
or household purposes, the buyer’s right of replevin vests upon acquisition of a special property, even if the seller had not then repudiated
or failed to deliver.
(5A Del. C. 1953, § 2-716; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1; 72 Del. Laws, c. 401, § 10.)
§ 2-717. Deduction of damages from the price.
The buyer on notifying the seller of his or her intention to do so may deduct all or any part of the damages resulting from any breach
of the contract from any part of the price still due under the same contract.
(5A Del. C. 1953, § 2-717; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-718. Liquidation or limitation of damages; deposits.
(1) Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of
the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise
obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.
(2) Where the seller justifiably withholds delivery of goods because of the buyer’s breach, the buyer is entitled to restitution of any
amount by which the sum of his or her payments exceeds
(a) the amount to which the seller is entitled by virtue of terms liquidating the seller’s damages in accordance with subsection (1), or
(b) in the absence of such terms, twenty per cent of the value of the total performance for which the buyer is obligated under the
contract or $500, whichever is smaller.
(3) The buyer’s right to restitution under subsection (2) is subject to offset to the extent that the seller establishes
(a) a right to recover damages under the provisions of this Article other than subsection (1), and
(b) the amount or value of any benefits received by the buyer directly or indirectly by reason of the contract.
(4) Where a seller has received payment in goods their reasonable value or the proceeds of their resale shall be treated as payments for
the purposes of subsection (2); but if the seller has notice of the buyer’s breach before reselling goods received in part performance, his
or her resale is subject to the conditions laid down in this Article on resale by an aggrieved seller (Section 2-706).
(5A Del. C. 1953, § 2-718; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-719. Contractual modification or limitation of remedy.
(1) Subject to the provisions of subsections (2) and (3) of this section and of the preceding section on liquidation and limitation of
damages,
(a) the agreement may provide for remedies in addition to or in substitution for those provided in this Article and may limit or alter
the measure of damages recoverable under this Article, as by limiting the buyer’s remedies to return of the goods and repayment of
the price or to repair and replacement of non-conforming goods or parts; and
(b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.
(2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this title.
(3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential
damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss
is commercial is not.
(5A Del. C. 1953, § 2-719; 55 Del. Laws, c. 349.)
§ 2-720. Effect of “cancellation” or “rescission” on claims for antecedent breach.
Unless the contrary intention clearly appears, expressions of “cancellation” or “rescission” of the contract or the like shall not be
construed as a renunciation or discharge of any claim in damages for an antecedent breach.
(5A Del. C. 1953, § 2-720; 55 Del. Laws, c. 349.)
§ 2-721. Remedies for fraud.
Remedies for material misrepresentation or fraud include all remedies available under this Article for non-fraudulent breach. Neither
rescission or a claim for rescission of the contract for sale nor rejection or return of the goods shall bar or be deemed inconsistent with
a claim for damages or other remedy.
(5A Del. C. 1953, § 2-721; 55 Del. Laws, c. 349.)
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Title 6 - Commerce and Trade
§ 2-722. Who can sue third parties for injury to goods.
Where a third party so deals with goods which have been identified to a contract for sale as to cause actionable injury to a party to
that contract
(a) a right of action against the third party is in either party to the contract for sale who has title to or a security interest or a special
property or an insurable interest in the goods; and if the goods have been destroyed or converted a right of action is also in the party
who either bore the risk of loss under the contract for sale or has since the injury assumed that risk as against the other;
(b) if at the time of the injury the party plaintiff did not bear the risk of loss as against the other party to the contract for sale and
there is no arrangement between them for disposition of the recovery, his or her suit or settlement is subject to his or her own interest,
as a fiduciary for the other party to the contract;
(c) either party may with the consent of the other sue for the benefit of whom it may concern.
(5A Del. C. 1953, § 2-722; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-723. Proof of market price; time and place.
(1) If an action based on anticipatory repudiation comes to trial before the time for performance with respect to some or all of the goods,
any damages based on market price (Section 2-708 or Section 2-713) shall be determined according to the price of such goods prevailing
at the time when the aggrieved party learned of the repudiation.
(2) If evidence of a price prevailing at the times or places described in this Article is not readily available the price prevailing within
any reasonable time before or after the time described or at any other place which in commercial judgment or under usage of trade would
serve as a reasonable substitute for the one described may be used, making any proper allowance for the cost of transporting the goods
to or from such other place.
(3) Evidence of a relevant price prevailing at a time or place other than the one described in this Article offered by one party is not
admissible unless and until he or she has given the other party such notice as the court finds sufficient to prevent unfair surprise.
(5A Del. C. 1953, § 2-723; 55 Del. Laws, c. 349; 70 Del. Laws, c. 186, § 1.)
§ 2-724. Admissibility of market quotations.
Whenever the prevailing price or value of any goods regularly bought and sold in any established commodity market is in issue, reports
in official publications or trade journals or in newspapers or periodicals of general circulation published as the reports of such market shall
be admissible in evidence. The circumstances of the preparation of such a report may be shown to affect its weight but not its admissibility.
(5A Del. C. 1953, § 2-724; 55 Del. Laws, c. 349.)
§ 2-725. Statute of limitations in contracts for sale.
(1) An action for breach of any contract for sale must be commenced within 4 years after the cause of action has accrued. By the original
agreement the parties may reduce the period of limitations to not less than one year but may not extend it.
(2) A cause of action accrues when the breach occurs, regardless of the aggrieved party’s lack of knowledge of the breach. A breach
of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods
and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have
been discovered.
(3) Where an action commenced within the time limited by subsection (1) is so terminated as to leave available a remedy by another
action for the same breach such other action may be commenced after the expiration of the time limited and within 6 months after the
termination of the first action unless the termination resulted from voluntary discontinuance or from dismissal for failure or neglect to
prosecute.
(4) This section does not alter the law on tolling of the statute of limitations nor does it apply to causes of action which have accrued
before this subtitle becomes effective.
(5A Del. C. 1953, § 2-725; 55 Del. Laws, c. 349.)
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Title 6 - Commerce and Trade
Subtitle I
Uniform Commercial Code
Article 2A
Leases
Part 1
General Provisions
§ 2A-101. Short title.
This Article shall be known and may be cited as the Uniform Commercial Code — Leases.
(68 Del. Laws, c. 249, § 1.)
§ 2A-102. Scope.
This Article applies to any transaction, regardless of form, that creates a lease.
(68 Del. Laws, c. 249, § 1.)
§ 2A-103. Definitions and index of definitions.
(1) In this Article unless the context otherwise requires:
(a) “Buyer in ordinary course of business” means a person who in good faith and without knowledge that the sale to him or her is
in violation of the ownership rights or security interest or leasehold interest of a third party in the goods, buys in ordinary course from
a person in the business of selling goods of that kind but does not include a pawnbroker. “Buying” may be for cash or by exchange of
other property or on secured or unsecured credit and includes acquiring goods or documents of title under a pre-existing contract for
sale but does not include a transfer in bulk or as security for or in total or partial satisfaction of a money debt.
(b) “Cancellation” occurs when either party puts an end to the lease contract for default by the other party.
(c) “Commercial unit” means such a unit of goods as by commercial usage is a single whole for purposes of lease and division of
which materially impairs its character or value on the market or in use. A commercial unit may be a single article, as a machine, or
a set of articles, as a suite of furniture or a line of machinery, or a quantity, as a gross or carload, or any other unit treated in use or
in the relevant market as a single whole.
(d) “Conforming” goods or performance under a lease contract means goods or performance that are in accordance with the
obligations under the lease contract.
(e) “Consumer lease” means a lease that a lessor regularly engaged in the business of leasing or selling makes to a lessee who is an
individual and who takes under the lease primarily for personal, family, or household purposes.
(f) “Fault” means wrongful act, omission, breach, or default.
(g) “Finance lease” means a lease with respect to which:
(i) The lessor does not select, manufacture or supply the goods;
(ii) The lessor acquires the goods or the right to possession and use of the goods in connection with the lease; and
(iii) One of the following occurs:
(A) The lessee receives a copy of the contract by which the lessor acquired the goods or the right to possession and use of the
goods before signing the lease contract;
(B) The lessee’s approval of the contract by which the lessor acquired the goods or the right to possession and use of the goods
is a condition to effectiveness of the lease contract;
(C) The lessee, before signing the lease contract, receives an accurate and complete statement designating the promises and
warranties, and any disclaimers of warranties, limitations or modifications of remedies, or liquidated damages, including those of
a third party, such as the manufacturer of the goods, provided to the lessor by the person supplying the goods in connection with
or as part of the contract by which the lessor acquired the goods or the right to possession and use of the goods; or
(D) If the lease is not a consumer lease, the lessor, before the lessee signs the lease contract, informs the lessee in writing
(1) Of the identity of the person supplying the goods to the lessor, unless the lessee has selected that person and directed the
lessor to acquire the goods or the right to possession and use of the goods from that person,
(2) That the lessee is entitled under this Article to the promises and warranties, including those of any third party, provided
to the lessor by the person supplying the goods in connection with or as part of the contract by which the lessor acquired the
goods or the right to possession and use of the goods, and
(3) That the lessee may communicate with the person supplying the goods to the lessor and receive an accurate and complete
statement of those promises and warranties, including any disclaimers and limitations of them or of remedies.
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Title 6 - Commerce and Trade
(h) “Goods” means all things that are movable at the time of identification to the lease contract, or are fixtures (Section 2A-309), but
the term does not include money, documents, instruments, accounts, chattel paper, general intangibles, or minerals or the like, including
oil and gas, before extraction. The term also includes the unborn young of animals.
(i) “Installment lease contract” means a lease contract that authorizes or requires the delivery of goods in separate lots to be separately
accepted, even though the lease contract contains a clause “each delivery is a separate lease” or its equivalent.
(j) “Lease” means a transfer of the right to possession and use of goods for a term in return for consideration, but a sale, including
a sale on approval or a sale or return, or retention or creation of a security interest is not a lease. Unless the context clearly indicates
otherwise, the term includes a sublease.
(k) “Lease agreement” means the bargain, with respect to the lease, of the lessor and the lessee in fact as found in their language
or by implication from other circumstances including course of dealing or usage of trade or course of performance as provided in this
Article. Unless the context clearly indicates otherwise, the term includes a sublease agreement.
(l) “Lease contract” means the total legal obligation that results from the lease agreement as affected by this Article and any other
applicable rules of law. Unless the context clearly indicates otherwise, the term includes a sublease contract.
(m) “Leasehold interest” means the interest of the lessor or the lessee under a lease contract.
(n) “Lessee” means a person who acquires the right to possession and use of goods under a lease. Unless the context clearly indicates
otherwise, the term includes a sublessee.
(o) “Lessee in ordinary course of business” means a person who in good faith and without knowledge that the lease to him or her is
in violation of the ownership rights or security interest or leasehold interest of a third party in the goods, leases in ordinary course from
a person in the business of selling or leasing goods of that kind but does not include a pawnbroker. “Leasing” may be for cash or by
exchange of other property or on secured or unsecured credit and includes acquiring goods or documents of title under a pre-existing
lease contract but does not include a transfer in bulk or as security for or in total or partial satisfaction of a money debt.
(p) “Lessor” means a person who transfers the right to possession and use of goods under a lease. Unless the context clearly indicates
otherwise, the term includes a sublessor.
(q) “Lessor’s residual interest” means the lessor’s interest in the goods after expiration, termination, or cancellation of the lease
contract.
(r) “Lien” means a charge against or interest in goods to secure payment of a debt or performance of an obligation, but the term
does not include a security interest.
(s) “Lot” means a parcel or a single article that is the subject matter of a separate lease or delivery, whether or not it is sufficient
to perform the lease contract.
(t) “Merchant lessee” means a lessee that is a merchant with respect to goods of the kind subject to the lease.
(u) “Present value” means the amount as of a date certain of one or more sums payable in the future, discounted to the date certain.
The discount is determined by the interest rate specified by the parties if the rate was not manifestly unreasonable at the time the
transaction was entered into; otherwise, the discount is determined by a commercially reasonable rate that takes into account the facts
and circumstances of each case at the time the transaction was entered into.
(v) “Purchase” includes taking by sale, lease, mortgage, security interest, pledge, gift, or any other voluntary transaction creating
an interest in goods.
(w) “Sublease” means a lease of goods the right to possession and use of which was acquired by the lessor as a lessee under an
existing lease.
(x) “Supplier” means a person from whom a lessor buys or leases goods to be leased under a finance lease.
(y) “Supply contract” means a contract under which a lessor buys or leases goods to be leased.
(z) “Termination” occurs when either party pursuant to a power created by agreement or law puts an end to the lease contract
otherwise than for default.
(2) Other definitions applying to this Article and the sections in which they appear are:
“Accessions”. Section 2A-310(1).
“Construction mortgage”. Section 2A-309(1)(d).
“Encumbrance”. Section 2A-309(1)(e).
“Fixtures”. Section 2A-309(1)(a).
“Fixture filing”. Section 2A-309(1)(b).
“Purchase money lease”. Section 2A-309(1)(c).
(3) The following definitions in other Articles apply to this Article:
“Account”. Section 9-102(a)(2).
“Between merchants”. Section 2-104(3).
“Buyer”. Section 2-103(1)(a).
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Title 6 - Commerce and Trade
“Chattel paper”. Section 9-102(a)(11).
“Consumer goods”. Section 9-102(a)(23).
“Document”. Section 9-102(a)(30).
“Entrusting”. Section 2-403(3).
“General intangible”. Section 9-102(a)(42).
“Good faith”. Section 2-103(1)(b). [Repealed.]
“Instrument”. Section 9-102(a)(47).
“Merchant”. Section 2-104(1).
“Mortgage”. Section 9-102(a)(55).
“Pursuant to commitment”. Section 9-102(a)(69).
“Receipt”. Section 2-103(1)(c).
“Sale”. Section 2-106(1).
“Sale on approval”. Section 2-326.
“Sale or return”. Section 2-326.
“Seller”. Section 2-103(1)(d).
(4) In addition, Article 1 contains general definitions and principles of construction and interpretation applicable throughout this Article.
(68 Del. Laws, c. 249, § 1; 70 Del. Laws, c. 186, § 1; 72 Del. Laws, c. 401, § 11; 74 Del. Laws, c. 332, §§ 18-20; 79 Del. Laws, c.
15, § 29.)
§ 2A-104. Leases subject to other law.
(1) A lease, although subject to this Article, is also subject to any applicable:
(a) Certificate of title statute of this State;
(b) Certificate of title statute of another jurisdiction (Section 2A-105); or
(c) Consumer protection statute of this State, or final consumer protection decision of a court of this State existing on July 19, 1992.
(2) In case of conflict between this Article, other than Sections 2A-105, 2A-304(3) and 2A-305(3), and a statute or decision referred
to in subsection (1), the statute or decision controls.
(3) Failure to comply with an applicable law has only the effect specified therein.
(68 Del. Laws, c. 249, § 1.)
§ 2A-105. Territorial application of article to goods covered by certificate of title.
Subject to the provisions of Sections 2A-304(3) and 2A-305(3), with respect to goods covered by a certificate of title issued under a
statute of this State or of another jurisdiction, compliance and the effect of compliance or noncompliance with a certificate of title statute
are governed by the law (including the conflict of laws rules) of the jurisdiction issuing the certificate until the earlier of (a) surrender
of the certificate, or (b) four months after the goods are removed from that jurisdiction and thereafter until a new certificate of title is
issued by another jurisdiction.
(68 Del. Laws, c. 249, § 1.)
§ 2A-106. Limitation on power of parties to consumer lease to choose applicable law and judicial forum.
(1) If the law chosen by the parties to a consumer lease is that of a jurisdiction other than a jurisdiction in which the lessee resides
at the time the lease agreement becomes enforceable or within 30 days thereafter, or in which the goods are to be used, the choice is
not enforceable.
(2) If the judicial forum chosen by the parties to a consumer lease is a forum that would not otherwise have jurisdiction over the lessee,
the choice is not enforceable.
(68 Del. Laws, c. 249, § 1.)
§ 2A-107. Waiver or renunciation of claim or right after default.
Any claim or right arising out of an alleged default or breach of warranty may be discharged in whole or in part without consideration
by a written waiver or renunciation signed and delivered by the aggrieved party.
(68 Del. Laws, c. 249, § 1.)
§ 2A-108. Unconscionability.
(1) If the court as a matter of law finds a lease contract or any clause of a lease contract to have been unconscionable at the time it was
made, the court may refuse to enforce the lease contract, or it may enforce the remainder of the lease contract without the unconscionable
clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
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Title 6 - Commerce and Trade
(2) With respect to a consumer lease, if the court as a matter of law finds that a lease contract or any clause of a lease contract has
been induced by unconscionable conduct or that unconscionable conduct has occurred in the collection of a claim arising from a lease
contract, the court may grant appropriate relief.
(3) Before making a finding of unconscionability under subsection (1) or (2), the court, on its own motion or that of a party, shall
afford the parties a reasonable opportunity to present evidence as to the setting, purpose, and effect of the lease contract or clause thereof,
or of the conduct.
(4) In an action in which the lessee claims unconscionability with respect to a consumer lease:
(a) If the court finds unconscionability under subsection (1) or (2), the court shall award reasonable attorney’s fees to the lessee.
(b) If the court does not find unconscionability and the lessee claiming unconscionability has brought or maintained an action he or
she knew to be groundless, the court shall award reasonable attorney’s fees to the party against whom the claim is made.
(c) In determining attorney’s fees, the amount of the recovery on behalf of the claimant under subsections (1) and (2) is not controlling.
(68 Del. Laws, c. 249, § 1; 70 Del. Laws, c. 186, § 1.)
§ 2A-109. Option to accelerate at will.
(1) A term providing that 1 party or his or her successor in interest may accelerate payment or performance or require collateral or
additional collateral “at will”, or “when he or she deems himself or herself insecure” or in words of similar import must be construed to
mean that he or she has power to do so only if he or she in good faith believes that the prospect of payment or performance is impaired.
(2) With respect to a consumer lease, the burden of establishing good faith under subsection (1) is on the party who exercised the power;
otherwise the burden of establishing lack of good faith is on the party against whom the power has been exercised.
(68 Del. Laws, c. 249, § 1; 70 Del. Laws, c. 186, § 1.)
Part 2
Formation and Construction of Lease Contract
§ 2A-201. Statute of frauds.
(1) A lease contract is not enforceable by way of action or defense unless:
(a) The total payments to be made under the lease contract, excluding payments for options to renew or buy, are less than $1,000; or
(b) There is a writing, signed by the party against whom enforcement is sought or by that party’s authorized agent, sufficient to
indicate that a lease contract has been made between the parties and to describe the goods leased and the lease term.
(2) Any description of leased goods or of the lease term is sufficient and satisfies subsection (1)(b), whether or not it is specific, if it
reasonably identifies what is described.
(3) A writing is not insufficient because it omits or incorrectly states a term agreed upon, but the lease contract is not enforceable under
subsection (1)(b) beyond the lease term and the quantity of goods shown in the writing.
(4) A lease contract that does not satisfy the requirements of subsection (1), but which is valid in other respects, is enforceable:
(a) If the goods are to be specially manufactured or obtained for the lessee and are not suitable for lease or sale to others in the ordinary
course of the lessor’s business, and the lessor, before notice of repudiation is received and under circumstances that reasonably indicate
that the goods are for the lessee, has made either a substantial beginning of their manufacture or commitments for their procurement;
(b) If the party against whom enforcement is sought admits in that party’s pleading, testimony or otherwise in court that a lease
contract was made, but the lease contract is not enforceable under this provision beyond the quantity of goods admitted; or
(c) With respect to goods that have been received and accepted by the lessee.
(5) The lease term under a lease contract referred to in subsection (4) is:
(a) If there is a writing signed by the party against whom enforcement is sought or by that party’s authorized agent specifying the
lease term, the term so specified;
(b) If the party against whom enforcement is sought admits in that party’s pleading, testimony, or otherwise in court a lease term,
the term so admitted; or
(c) A reasonable lease term.
(68 Del. Laws, c. 249, § 1.)
§ 2A-202. Final written expression: Parol or extrinsic evidence.
Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by
the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence
of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented:
(a) By course of dealing or usage of trade or by course of performance; and
(b) By evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and
exclusive statement of the terms of the agreement.
(68 Del. Laws, c. 249, § 1.)
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Title 6 - Commerce and Trade
§ 2A-203. Seals inoperative.
The affixing of a seal to a writing evidencing a lease contract or an offer to enter into a lease contract does not render the writing a
sealed instrument and the law with respect to sealed instruments does not apply to the lease contract or offer.
(68 Del. Laws, c. 249, § 1.)
§ 2A-204. Formation in general.
(1) A lease contract may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes
the existence of a lease contract.
(2) An agreement sufficient to constitute a lease contract may be found although the moment of its making is undetermined.
(3) Although 1 or more terms are left open, a lease contract does not fail for indefiniteness if the parties have intended to make a lease
contract and there is a reasonably certain basis for giving an appropriate remedy.
(68 Del. Laws, c. 249, § 1.)
§ 2A-205. Firm offers.
An offer by a merchant to lease goods to or from another person in a signed writing that by its terms gives assurance it will be held open is
not revocable, for lack of consideration, during the time stated or, if no time is stated, for a reasonable time, but in no event may the period
of irrevocability exceed 3 months. Any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.
(68 Del. Laws, c. 249, § 1.)
§ 2A-206. Offer and acceptance in formation of lease contract.
(1) Unless otherwise unambiguously indicated by the language or circumstances, an offer to make a lease contract must be construed
as inviting acceptance in any manner and by any medium reasonable in the circumstances.
(2) If the beginning of a requested performance is a reasonable mode of acceptance, an offeror who is not notified of acceptance within
a reasonable time may treat the offer as having lapsed before acceptance.
(68 Del. Laws, c. 249, § 1.)
§ 2A-207. [Reserved.]
§ 2A-208. Modification, rescission and waiver.
(1) An agreement modifying a lease contract needs no consideration to be binding.
(2) A signed lease agreement that excludes modification or rescission except by a signed writing may not be otherwise modified or
rescinded, but, except as between merchants, such a requirement on a form supplied by a merchant must be separately signed by the
other party.
(3) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2), it may operate as a waiver.
(4) A party who has made a waiver affecting an executory portion of a lease contract may retract the waiver by reasonable notification
received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of
a material change of position in reliance on the waiver.
(68 Del. Laws, c. 249, § 1.)
§ 2A-209. Lessee under finance lease as beneficiary of supply contract.
(1) The benefit of a supplier’s promises to the lessor under the supply contract and of all warranties, whether express or implied,
including those of any third party provided in connection with or as part of the supply contract, extends to the lessee to the extent of the
lessee’s leasehold interest under a finance lease related to the supply contract, but is subject to the terms of the warranty and of the supply
contract and all defenses or claims arising therefrom.
(2) The extension of the benefit of a supplier’s promises and of warranties to the lessee (Section 2A-209(1)) does not: (i) modify the
rights and obligations of the parties to the supply contract, whether arising therefrom or otherwise, or (ii) impose any duty or liability
under the supply contract on the lessee.
(3) Any modification or rescission of the supply contract by the supplier and the lessor is effective between the supplier and the lessee
unless, before the modification or rescission, the supplier has received notice that the lessee has entered into a finance lease related to the
supply contract. If the modification or rescission is effective between the supplier and the lessee, the lessor is deemed to have assumed,
in addition to the obligations of the lessor to the lessee under the lease contract, promises of the supplier to the lessor and warranties that
were so modified or rescinded as they existed and were available to the lessee before modification or rescission.
(4) In addition to the extension of the benefit of the supplier’s promises and of warranties to the lessee under subsection (1), the lessee
retains all rights that the lessee may have against the supplier which arise from an agreement between the lessee and the supplier or
under other law.
(68 Del. Laws, c. 249, § 1.)
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§ 2A-210. Express warranties.
(1) Express warranties by the lessor are created as follows:
(a) Any affirmation of fact or promise made by the lessor to the lessee which relates to the goods and becomes part of the basis of
the bargain creates an express warranty that the goods will conform to the affirmation or promise.
(b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods will
conform to the description.
(c) Any sample or model that is made part of the basis of the bargain creates an express warranty that the whole of the goods will
conform to the sample or model.
(2) It is not necessary to the creation of an express warranty that the lessor use formal words, such as “warrant” or “guarantee,” or that
the lessor have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to
be merely the lessor’s opinion or commendation of the goods does not create a warranty.
(68 Del. Laws, c. 249, § 1.)
§ 2A-211. Warranties against interference and against infringement; lessee’s obligation against
infringement.
(1) There is in a lease contract a warranty that for the lease term no person holds a claim to or interest in the goods that arose from
an act or omission of the lessor, other than a claim by way of infringement or the like, which will interfere with the lessee’s enjoyment
of its leasehold interest.
(2) Except in a finance lease, there is in a lease contract by a lessor who is a merchant regularly dealing in goods of the kind a warranty
that the goods are delivered free of the rightful claim of any person by way of infringement or the like.
(3) A lessee who furnishes specifications to a lessor or a supplier shall hold the lessor and the supplier harmless against any claim by
way of infringement or the like that arises out of compliance with the specifications.
(68 Del. Laws, c. 249, § 1.)
§ 2A-212. Implied warranty of merchantability.
(1) Except in a finance lease, a warranty that the goods will be merchantable is implied in a lease contract if the lessor is a merchant
with respect to goods of that kind.
(2) Goods to be merchantable must be at least such as
(a) pass without objection in the trade under the description in the lease agreement;
(b) in the case of fungible goods, are of fair average quality within the description;
(c) are fit for the ordinary purposes for which goods of that type are used;
(d) run, within the variation permitted by the lease agreement, of even kind, quality, and quantity within each unit and among all
units involved;
(e) are adequately contained, packaged, and labeled as the lease agreement may require; and
(f) conform to any promises or affirmations of fact made on the container or label.
(3) Other implied warranties may arise from course of dealing or usage of trade.
(68 Del. Laws, c. 249, § 1.)
§ 2A-213. Implied warranty of fitness for particular purpose.
Except in a finance lease, if the lessor at the time the lease contract is made has reason to know of any particular purpose for which the
goods are required and that the lessee is relying on the lessor’s skill or judgment to select or furnish suitable goods, there is in the lease
contract an implied warranty that the goods will be fit for that purpose.
(68 Del. Laws, c. 249, § 1.)
§ 2A-214. Exclusion or modification of warranties.
(1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit a warranty must
be construed wherever reasonable as consistent with each other; but, subject to the provisions of Section 2A-202 on parol or extrinsic
evidence, negation or limitation is inoperative to the extent that the construction is unreasonable.
(2) Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention
“merchantability”, be by a writing, and be conspicuous. Subject to subsection (3), to exclude or modify any implied warranty of fitness
the exclusion must be by a writing and be conspicuous. Language to exclude all implied warranties of fitness is sufficient if it is in writing,
is conspicuous and states, for example, “There is no warranty that the goods will be fit for a particular purpose”.
(3) Notwithstanding subsection (2), but subject to subsection (4),
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(a) unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like “as is,” or “with all faults,”
or by other language that in common understanding calls the lessee’s attention to the exclusion of warranties and makes plain that there
is no implied warranty, if in writing and conspicuous;
(b) if the lessee before entering into the lease contract has examined the goods or the sample or model as fully as desired or has
refused to examine the goods, there is no implied warranty with regard to defects that an examination ought in the circumstances to
have revealed; and
(c) an implied warranty may also be excluded or modified by course of dealing, course of performance, or usage of trade.
(4) To exclude or modify a warranty against interference or against infringement (Section 2A-211) or any part of it, the language must
be specific, be by a writing, and be conspicuous, unless the circumstances, including course of performance, course of dealing, or usage
of trade, give the lessee reason to know that the goods are being leased subject to a claim or interest of any person.
(68 Del. Laws, c. 249, § 1.)
§ 2A-215. Cumulation and conflict of warranties express or implied.
Warranties, whether express or implied, must be construed as consistent with each other and as cumulative, but if that construction is
unreasonable, the intention of the parties determines which warranty is dominant. In ascertaining that intention the following rules apply:
(a) Exact or technical specifications displace an inconsistent sample or model or general language of description.
(b) A sample from an existing bulk displaces inconsistent general language of description.
(c) Express warranties displace inconsistent implied warranties other than an implied warranty of fitness for a particular purpose.
(68 Del. Laws, c. 249, § 1.)
§ 2A-216. Third-party beneficiaries of express and implied warranties.
A warranty to or for the benefit of a lessee under this Article, whether express or implied, extends to any natural person who may
reasonably be expected to use, consume or be affected by the goods and who is injured by breach of the warranty. This section does not
displace principles of law and equity that extend a warranty to or for the benefit of a lessee to other persons. The operation of this section
may not be excluded, modified, or limited with respect to injury to the person of an individual to whom the warranty extends, but an
exclusion, modification, or limitation of the warranty, including any with respect to rights and remedies, effective against the lessee is
also effective against any beneficiary designated under this section.
(68 Del. Laws, c. 249, § 1.)
§ 2A-217. Identification.
Identification of goods as goods to which a lease contract refers may be made at any time and in any manner explicitly agreed to by
the parties. In the absence of explicit agreement, identification occurs:
(a) When the lease contract is made if the lease contract is for a lease of goods that are existing and identified;
(b) When the goods are shipped, marked, or otherwise designated by the lessor as goods to which the lease contract refers, if the
lease contract is for a lease of goods that are not existing and identified; or
(c) When the young are conceived, if the lease contract is for a lease of unborn young of animals.
(68 Del. Laws, c. 249, § 1.)
§ 2A-218. Insurance and proceeds.
(1) A lessee obtains an insurable interest when existing goods are identified to the lease contract even though the goods identified are
nonconforming and the lessee has an option to reject them.
(2) If a lessee has an insurable interest only by reason of the lessor’s identification of the goods, the lessor, until default or insolvency
or notification to the lessee that identification is final, may substitute other goods for those identified.
(3) Notwithstanding a lessee’s insurable interest under subsections (1) and (2), the lessor retains an insurable interest until an option
to buy has been exercised by the lessee and risk of loss has passed to the lessee.
(4) Nothing in this section impairs any insurable interest recognized under any other statute or rule of law.
(5) The parties by agreement may determine that 1 or more parties have an obligation to obtain and pay for insurance covering the
goods and by agreement may determine the beneficiary of the proceeds of the insurance.
(68 Del. Laws, c. 249, § 1.)
§ 2A-219. Risk of loss.
(1) Except in the case of a finance lease, risk of loss is retained by the lessor and does not pass to the lessee. In the case of a finance
lease, risk of loss passes to the lessee.
(2) Subject to the provisions of this Article on the effect of default on risk of loss (Section 2A-220), if risk of loss is to pass to the lessee
and the time of passage is not stated, the following rules apply:
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(a) If the lease contract requires or authorizes the goods to be shipped by carrier
(i) and it does not require delivery at a particular destination, the risk of loss passes to the lessee when the goods are duly delivered
to the carrier; but
(ii) if it does require delivery at a particular destination and the goods are there duly tendered while in the possession of the carrier,
the risk of loss passes to the lessee when the goods are there duly so tendered as to enable the lessee to take delivery.
(b) If the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the lessee on acknowledgment
by the bailee of the lessee’s right to possession of the goods.
(c) In any case not within subsection (a) or (b), the risk of loss passes to the lessee on the lessee’s receipt of the goods if the lessor,
or, in the case of a finance lease, the supplier, is a merchant; otherwise the risk passes to the lessee on tender of delivery.
(68 Del. Laws, c. 249, § 1.)
§ 2A-220. Effect of default on risk of loss.
(1) Where risk of loss is to pass to the lessee and the time of passage is not stated:
(a) If a tender or delivery of goods so fails to conform to the lease contract as to give a right of rejection, the risk of their loss remains
with the lessor, or, in the case of a finance lease, the supplier, until cure or acceptance.
(b) If the lessee rightfully revokes acceptance, he or she, to the extent of any deficiency in his or her effective insurance coverage,
may treat the risk of loss as having remained with the lessor from the beginning.
(2) Whether or not risk of loss is to pass to the lessee, if the lessee as to conforming goods already identified to a lease contract repudiates
or is otherwise in default under the lease contract, the lessor, or, in the case of a finance lease, the supplier, to the extent of any deficiency
in his or her effective insurance coverage may treat the risk of loss as resting on the lessee for a commercially reasonable time.
(68 Del. Laws, c. 249, § 1; 70 Del. Laws, c. 186, § 1.)
§ 2A-221. Casualty to identified goods.
If a lease contract requires goods identified when the lease contract is made, and the goods suffer casualty without fault of the lessee, the
lessor or the supplier before delivery, or the goods suffer casualty before risk of loss passes to the lessee pursuant to the lease agreement
or Section 2A-219, then:
(a) If the loss is total, the lease contract is avoided; and
(b) If the loss is partial or the goods have so deteriorated as to no longer conform to the lease contract, the lessee may nevertheless
demand inspection and at his or her option either treat the lease contract as avoided or, except in a finance lease that is not a consumer
lease, accept the goods with due allowance from the rent payable for the balance of the lease term for the deterioration or the deficiency
in quantity but without further right against the lessor.
(68 Del. Laws, c. 249, § 1; 70 Del. Laws, c. 186, § 1.)
Part 3
Effect of Lease Contract
§ 2A-301. Enforceability of lease contract.
Except as otherwise provided in this Article, a lease contract is effective and enforceable according to its terms between the parties,
against purchasers of the goods and against creditors of the parties.
(68 Del. Laws, c. 249, § 1.)
§ 2A-302. Title to and possession of goods.
Except as otherwise provided in this Article, each provision of this Article applies whether the lessor or a third party has title to the
goods, and whether the lessor, the lessee, or a third party has possession of the goods, notwithstanding any statute or rule of law that
possession or the absence of possession is fraudulent.
(68 Del. Laws, c. 249, § 1.)
§ 2A-303. Alienability of party’s interest under lease contract or of lessor’s residual interest in goods;
delegation of performance; transfer of rights.
(1) As used in this section, “creation of a security interest” includes the sale of a lease contract that is subject to Article 9, Secured
Transactions, by reason of Section 9-109(a)(3).
(2) Except as provided in subsection (3) and Section 9-407, a provision in a lease agreement which (i) prohibits the voluntary or
involuntary transfer, including a transfer by sale, sublease, creation or enforcement of a security interest, or attachment, levy, or other
judicial process, of an interest of a party under the lease contract or of the lessor’s residual interest in the goods, or (ii) makes such a
transfer an event of default, gives rise to the rights and remedies provided in subsection (4), but a transfer that is prohibited or is an event
of default under the lease agreement is otherwise effective.
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Title 6 - Commerce and Trade
(3) A provision in a lease agreement which (i) prohibits a transfer of a right to damages for default with respect to the whole lease
contract or of a right to payment arising out of the transferor’s due performance of the transferor’s entire obligation, or (ii) makes such
a transfer an event of default, is not enforceable, and such a transfer is not a transfer that materially impairs the prospect of obtaining
return performance by, materially changes the duty of, or materially increases the burden or risk imposed on, the other party to the lease
contract within the purview of subsection (4).
(4) Subject to subsection (3) and Section 9-407:
(a) if a transfer is made which is made an event of default under a lease agreement, the party to the lease contract not making the
transfer, unless that party waives the default or otherwise agrees, has the rights and remedies described in Section 2A-501(2);
(b) if paragraph (a) is not applicable and if a transfer is made that (i) is prohibited under a lease agreement or (ii) materially impairs
the prospect of obtaining return performance by, materially changes the duty of, or materially increases the burden or risk imposed on,
the other party to the lease contract, unless the party not making the transfer agrees at any time to the transfer in the lease contract or
otherwise, then, except as limited by contract, (i) the transferor is liable to the party not making the transfer for damages caused by the
transfer to the extent that the damages could not reasonably be prevented by the party not making the transfer and (ii) a court having
jurisdiction may grant other appropriate relief, including cancellation of the lease contract or an injunction against the transfer.
(5) A transfer of “the lease” or of “all my rights under the lease”, or a transfer in similar general terms, is a transfer of rights and, unless
the language or the circumstances, as in a transfer for security, indicate the contrary, the transfer is a delegation of duties by the transferor
to the transferee. Acceptance by the transferee constitutes a promise by the transferee to perform those duties. The promise is enforceable
by either the transferor or the other party to the lease contract.
(6) Unless otherwise agreed by the lessor and the lessee, a delegation of performance does not relieve the transferor as against the other
party of any duty to perform or of any liability for default.
(7) In a consumer lease, to prohibit the transfer of an interest of a party under the lease contract or to make a transfer an event of default,
the language must be specific, by a writing, and conspicuous.
(68 Del. Laws, c. 249, § 1; 72 Del. Laws, c. 401, § 12.)
§ 2A-304. Subsequent lease of goods by lessor.
(1) Subject to Section 2A-303, a subsequent lessee from a lessor of goods under an existing lease contract obtains, to the extent of the
leasehold interest transferred, the leasehold interest in the goods that the lessor had or had power to transfer, and except as provided in
subsection (2) and Section 2A-527(4), takes subject to the existing lease contract. A lessor with voidable title has power to transfer a good
leasehold interest to a good faith subsequent lessee for value, but only to the extent set forth in the preceding sentence. If goods have been
delivered under a transaction of purchase, the lessor has that power even though:
(a) The lessor’s transferor was deceived as to the identity of the lessor;
(b) The delivery was in exchange for a check which is later dishonored;
(c) It was agreed that the transaction was to be a “cash sale”; or
(d) The delivery was procured through fraud punishable as larcenous under the criminal law.
(2) A subsequent lessee in the ordinary course of business from a lessor who is a merchant dealing in goods of that kind to whom the
goods were entrusted by the existing lessee of that lessor before the interest of the subsequent lessee became enforceable against that
lessor obtains, to the extent of the leasehold interest transferred, all of that lessor’s and the existing lessee’s rights to the goods, and takes
free of the existing lease contract.
(3) A subsequent lessee from the lessor of goods that are subject to an existing lease contract and are covered by a certificate of title
issued under a statute of this State or of another jurisdiction takes no greater rights than those provided both by this section and by the
certificate of title statute.
(68 Del. Laws, c. 249, § 1.)
§ 2A-305. Sale or sublease of goods by lessee.
(1) Subject to the provisions of Section 2A-303, a buyer or sublessee from the lessee of goods under an existing lease contract obtains,
to the extent of the interest transferred, the leasehold interest in the goods that the lessee had or had power to transfer, and except as
provided in subsection (2) and Section 2A-511(4), takes subject to the existing lease contract. A lessee with a voidable leasehold interest
has power to transfer a good leasehold interest to a good faith buyer for value or a good faith sublessee for value, but only to the extent
set forth in the preceding sentence. When goods have been delivered under a transaction of lease the lessee has that power even though:
(a) The lessor was deceived as to the identity of the lessee;
(b) The delivery was in exchange for a check which is later dishonored; or
(c) The delivery was procured through fraud punishable as larcenous under the criminal law.
(2) A buyer in the ordinary course of business or a sublessee in the ordinary course of business from a lessee who is a merchant dealing
in goods of that kind to whom the goods were entrusted by the lessor obtains, to the extent of the interest transferred, all of the lessor’s
and lessee’s rights to the goods, and takes free of the existing lease contract.
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Title 6 - Commerce and Trade
(3) A buyer or sublessee from the lessee of goods that are subject to an existing lease contract and are covered by a certificate of title
issued under a statute of this State or of another jurisdiction takes no greater rights than those provided both by this section and by the
certificate of title statute.
(68 Del. Laws, c. 249, § 1.)
§ 2A-306. Priority of certain liens arising by operation of law.
If a person in the ordinary course of his or her business furnishes services or materials with respect to goods subject to a lease contract,
a lien upon those goods in the possession of that person given by statute or rule of law for those materials or services takes priority over
any interest of the lessor or lessee under the lease contract or this Article unless the lien is created by statute and the statute provides
otherwise or unless the lien is created by rule of law and the rule of law provides otherwise.
(68 Del. Laws, c. 249, § 1; 70 Del. Laws, c. 186, § 1.)
§ 2A-307. Priority of liens arising by attachment or levy on, security interests in, and other claims to goods.
(1) Except as otherwise provided in Section 2A-306, a creditor of a lessee takes subject to the lease contract.
(2) Except as otherwise provided in subsection (3) and in Sections 2A-306 and 2A-308, a creditor of a lessor takes subject to the lease
contract unless the creditor holds a lien that attached to the goods before the lease contract became enforceable.
(3) Except as otherwise provided in Sections 9-317, 9-321, and 9-323, a lessee takes a leasehold interest subject to a security interest
held by a creditor of the lessor.
(68 Del. Laws, c. 249, § 1; 72 Del. Laws, c. 401, § 13.)
§ 2A-308. Special rights of creditors.
(1) A creditor of a lessor in possession of goods subject to a lease contract may treat the lease contract as void if as against the creditor
retention of possession by the lessor is fraudulent under any statute or rule of law, but retention of possession in good faith and current
course of trade by the lessor for a commercially reasonable time after the lease contract becomes enforceable is not fraudulent.
(2) Nothing in this Article impairs the rights of creditors of a lessor if the lease contract (a) becomes enforceable, not in current course
of trade but in satisfaction of or as security for a pre-existing claim for money, security, or the like, and (b) is made under circumstances
which under any statute or rule of law apart from this Article would constitute the transaction a fraudulent transfer or voidable preference.
(3) A creditor of a seller may treat a sale or an identification of goods to a contract for sale as void if as against the creditor retention of
possession by the seller is fraudulent under any statute or rule of law, but retention of possession of the goods pursuant to a lease contract
entered into by the seller as lessee and the buyer as lessor in connection with the sale or identification of the goods is not fraudulent if
the buyer bought for value and in good faith.
(68 Del. Laws, c. 249, § 1.)
§ 2A-309. Lessor’s and lessee’s rights when goods become fixtures.
(1) In this section:
(a) Goods are “fixtures” when they become so related to particular real estate that an interest in them arises under real estate law;
(b) A “fixture filing” is the filing, in the office where a record of a mortgage on the real estate would be filed or recorded, of a
financing statement covering goods that are or are to become fixtures and conforming to the requirements of Section 9-502(a) and (b);
(c) A lease is a “purchase money lease” unless the lessee has possession or use of the goods or the right to possession or use of the
goods before the lease agreement is enforceable;
(d) A mortgage is a “construction mortgage” to the extent it secures an obligation incurred for the construction of an improvement
on land including the acquisition cost of the land, if the recorded writing so indicates; and
(e) “Encumbrance” includes real estate mortgages and other liens on real estate and all other rights in real estate that are not ownership
interests.
(2) Under this Article a lease may be of goods that are fixtures or may continue in goods that become fixtures, but no lease exists under
this Article of ordinary building materials incorporated into an improvement on land.
(3) This Article does not prevent creation of a lease of fixtures pursuant to real estate law.
(4) The interest of a lessor of fixtures, including the lessor’s residual interest, has priority over a conflicting interest of an encumbrancer
or owner of the real estate if:
(a) The lease is a purchase money lease, the conflicting interest of the encumbrancer or owner arises before the goods become
fixtures, a fixture filing covering the interest of the lessor is made before the goods become fixtures or within 10 days thereafter, and
the lessee has an interest of record in the real estate or is in possession of the real estate; or
(b) A fixture filing covering the interest of the lessor is made before the interest of the encumbrancer or owner is of record, the
lessor’s interest, has priority over any conflicting interest of a predecessor in title of the encumbrancer or owner, and the lessee has an
interest of record in the real estate or is in possession of the real estate.
(5) Whether or not a fixture filing covering the fixtures has been made, the interest of a lessor of fixtures, including the lessor’s residual
interest, has priority over the conflicting interest of an encumbrancer or owner of the real estate if:
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(a) The fixtures are readily removable factory or office machines, readily removable equipment that is not primarily used or leased
for use in the operation of the real estate, or readily removable replacements of domestic appliances that are goods subject to a consumer
lease, and before the goods become fixtures the lease contract is enforceable; or
(b) The conflicting interest is a lien on the real estate obtained by legal or equitable proceedings after the lease contract is enforceable;
or
(c) The encumbrancer or owner has consented in writing to the lease or has disclaimed an interest in the goods as fixtures; or
(d) The lessee has a right to remove the goods as against the encumbrancer or owner. If the lessee’s right to remove terminates, the
priority of the interest of the lessor continues for a reasonable time.
(6) Notwithstanding subsection (4)(a) but otherwise subject to subsections (4) and (5), the interest of a lessor of fixtures, including the
lessor’s residual interest, is subordinate to the conflicting interest of an encumbrancer of the real estate under a construction mortgage
recorded before the goods become fixtures if the goods become fixtures before the completion of the construction. To the extent given
to refinance a construction mortgage, the conflicting interest of an encumbrancer of the real estate under a mortgage has this priority to
the same extent as the encumbrancer of the real estate under the construction mortgage.
(7) In cases not within the preceding subsections, priority between the interest of a lessor of fixtures, including the lessor’s residual
interest, and the conflicting interest of an encumbrancer or owner of the real estate who is not the lessee is determined by the priority
rules governing conflicting interests in real estate.
(8) If the interest of a lessor of fixtures, including the lessor’s residual interest, has priority over all conflicting interests of all owners and
encumbrancers of the real estate, the lessor or the lessee may (i) on default, expiration, termination, or cancellation of the lease agreement
but subject to the lease agreement and this Article, or (ii) if necessary to enforce other rights and remedies of the lessor or lessee under this
Article, remove the goods from the real estate, free and clear of all conflicting interests of all owners and encumbrancers of the real estate,
but the lessor or lessee must reimburse any encumbrancer or owner of the real estate who is not the lessee and who has not otherwise
agreed for the cost of repair of any physical injury, but not for any diminution in value of the real estate caused by the absence of the
goods removed or by any necessity of replacing them. A person entitled to reimbursement may refuse permission to remove until the
party seeking removal gives adequate security for the performance of this obligation.
(68 Del. Laws, c. 249, § 1; 72 Del. Laws, c. 401, § 14.)
§ 2A-310. Lessor’s and lessee’s rights goods become accessions.
(1) Goods are “accessions” when they are installed in or affixed to other goods.
(2) The interest of a lessor or a lessee under a lease contract entered into before the goods became accessions is superior to all interests
in the whole except as stated in subsection (4).
(3) The interest of a lessor or a lessee under a lease contract entered into at the time or after the goods became accessions is superior to
all subsequently acquired interests in the whole except as stated in subsection (4) but is subordinate to interests in the whole existing at
the time the lease contract was made unless the holders of such interests in the whole have in writing consented to the lease or disclaimed
an interest in the goods as part of the whole.
(4) The interest of a lessor or a lessee under a lease contract described in subsection (2) or (3) is subordinate to the interest of:
(a) A buyer in the ordinary course of business or a lessee in the ordinary course of business of any interest in the whole acquired
after the goods became accessions; or
(b) A creditor with a security interest in the whole perfected before the lease contract was made to the extent that the creditor makes
subsequent advances without knowledge of the lease contract.
(5) When under subsections (2) or (3) and (4) a lessor or a lessee of accessions holds an interest that is superior to all interests in the
whole, the lessor or the lessee may (a) on default, expiration, termination, or cancellation of the lease contract by the other party but subject
to the provisions of the lease contract and this Article, or (b) if necessary to enforce his or her other rights and remedies under this Article,
remove the goods from the whole, free and clear of all interests in the whole, but he or she must reimburse any holder of an interest in the
whole who is not the lessee and who has not otherwise agreed for the cost of repair of any physical injury but not for any diminution in
value of the whole caused by the absence of the goods removed or by any necessity for replacing them. A person entitled to reimbursement
may refuse permission to remove until the party seeking removal gives adequate security for the performance of this obligation.
(68 Del. Laws, c. 249, § 1; 70 Del. Laws, c. 186, § 1.)
§ 2A-311. Priority subject to subordination.
Nothing in this Article prevents subordination by agreement by any person entitled to priority.
(68 Del. Laws, c. 249, § 1.)
Part 4
Performance of Lease Contract: Repudiated, Substituted and Excused
§ 2A-401. Insecurity: adequate assurance of performance.
(1) A lease contract imposes an obligation on each party that the other’s expectation of receiving due performance will not be impaired.
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Title 6 - Commerce and Trade
(2) If reasonable grounds for insecurity arise with respect to the performance of either party, the insecure party may demand in writing
adequate assurance of due performance. Until the insecure party receives that assurance, if commercially reasonable the insecure party
may suspend any performance for which he or she has not already received the agreed return.
(3) A repudiation of the lease contract occurs if assurance of due performance adequate under the circumstances of the particular case
is not provided to the insecure party within a reasonable time, not to exceed 30 days after receipt of a demand by the other party.
(4) Between merchants, the reasonableness of grounds for insecurity and the adequacy of any assurance offered must be determined
according to commercial standards.
(5) Acceptance of any nonconforming delivery or payment does not prejudice the aggrieved party’s right to demand adequate assurance
of future performance.
(68 Del. Laws, c. 249, § 1; 70 Del. Laws, c. 186, § 1.)
§ 2A-402. Anticipatory repudiation.
If either party repudiates a lease contract with respect to a performance not yet due under the lease contract, the loss of which
performance will substantially impair the value of the lease contract to the other, the aggrieved party may:
(a) For a commercially reasonable time, await retraction of repudiation and performance by the repudiating party;
(b) Make demand pursuant to Section 2A-401 and await assurance of future performance adequate under the circumstances of the
particular case; or
(c) Resort to any right or remedy upon default under the lease contract or this Article, even though the aggrieved party has notified
the repudiating party that the aggrieved party would await the repudiating party’s performance and assurance and has urged retraction.
In addition, whether or not the aggrieved party is pursuing one of the foregoing remedies, the aggrieved party may suspend performance
or, if the aggrieved party is the lessor, proceed in accordance with the provisions of this Article on the lessor’s right to identify goods
to the lease contract notwithstanding default or to salvage unfinished goods (Section 2A-524).
(68 Del. Laws, c. 249, § 1.)
§ 2A-403. Retraction of anticipatory repudiation.
(1) Until the repudiating party’s next performance is due, the repudiating party can retract the repudiation unless, since the repudiation,
the aggrieved party has cancelled the lease contract or materially changed the aggrieved party’s position or otherwise indicated that the
aggrieved party considers the repudiation final.
(2) Retraction may be by any method that clearly indicates to the aggrieved party that the repudiating party intends to perform under
the lease contract and includes any assurance demanded under Section 2A-401.
(3) Retraction reinstates a repudiating party’s rights under a lease contract with due excuse and allowance to the aggrieved party for
any delay occasioned by the repudiation.
(68 Del. Laws, c. 249, § 1.)
§ 2A-404. Substituted performance.
(1) If without fault of the lessee, the lessor and the supplier, the agreed berthing, loading, or unloading facilities fail or the agreed type
of carrier becomes unavailable or the agreed manner of delivery otherwise becomes commercially impracticable, but a commercially
reasonable substitute is available, the substitute performance must be tendered and accepted.
(2) If the agreed means or manner of payment fails because of domestic or foreign governmental regulation:
(a) The lessor may withhold or stop delivery or cause the supplier to withhold or stop delivery unless the lessee provides a means
or manner of payment that is commercially a substantial equivalent; and
(b) If delivery has already been taken, payment by the means or in the manner provided by the regulation discharges the lessee’s
obligation unless the regulation is discriminatory, oppressive, or predatory.
(68 Del. Laws, c. 249, § 1.)
§ 2A-405. Excused performance.
Subject to Section 2A-404 on substituted performance, the following rules apply;
(a) Delay in delivery or nondelivery in whole or in part by a lessor or a supplier who complies with paragraphs (b) and (c) is
not a default under the lease contract if performance as agreed has been made impracticable by the occurrence of a contingency the
nonoccurrence of which was a basic assumption on which the lease contract was made or by compliance in good faith with any
applicable foreign or domestic governmental regulation or order, whether or not the regulation or order later proves to be invalid.
(b) If the causes mentioned in paragraph (a) affect only part of the lessor’s or the supplier’s capacity to perform, he or she shall
allocate production and deliveries among his or her customers but at his or her option may include regular customers not then under
contract for sale or lease as well as his or her own requirements for further manufacture. He or she may so allocate in any manner
that is fair and reasonable.
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(c) The lessor seasonably shall notify the lessee and in the case of a finance lease the supplier seasonably shall notify the lessor and
the lessee, if known, that there will be delay or nondelivery and, if allocation is required under paragraph (b), of the estimated quota
thus made available for the lessee.
(68 Del. Laws, c. 249, § 1; 70 Del. Laws, c. 186, § 1.)
§ 2A-406. Procedure on excused performance.
(1) If the lessee receives notification of a material or indefinite delay or an allocation justified under Section 2A-405, the lessee may
by written notification to the lessor as to any goods involved, and with respect to all of the goods if under an installment lease contract
the value of the whole lease contract is substantially impaired (Section 2A-510):
(a) Terminate the lease contract (Section 2A-505(2)); or
(b) Except in a finance lease that is not a consumer lease, modify the lease contract by accepting the available quota in substitution,
with due allowance from the rent payable for the balance of the lease term for the deficiency but without further right against the lessor.
(2) If, after receipt of a notification from the lessor under Section 2A-405, the lessee fails so to modify the lease agreement within a
reasonable time not exceeding 30 days, the lease contract lapses with respect to any deliveries affected.
(68 Del. Laws, c. 249, § 1.)
§ 2A-407. Irrevocable promises: Finance leases.
(1) In the case of a finance lease that is not a consumer lease the lessee’s promises under the lease contract become irrevocable and
independent upon the lessee’s acceptance of the goods.
(2) A promise that has become irrevocable and independent under subsection (1):
(a) Is effective and enforceable between the parties, and by or against third parties including assignees of the parties, and
(b) Is not subject to cancellation, termination, modification, repudiation, excuse, or substitution without the consent of the party to
whom the promise runs.
(3) This section does not affect the validity under any other law of a covenant in any lease contract making the lessee’s promises
irrevocable and independent upon the lessee’s acceptance of the goods.
(68 Del. Laws, c. 249, § 1.)
Part 5
Default
A In General
§ 2A-501. Default: Procedure.
(1) Whether the lessor or the lessee is in default under a lease contract is determined by the lease agreement and this Article.
(2) If the lessor or the lessee is in default under the lease contract, the party seeking enforcement has rights and remedies as provided
in this Article and, except as limited by this Article, as provided in the lease agreement.
(3) If the lessor or the lessee is in default under the lease contract, the party seeking enforcement may reduce the party’s claim to
judgment, or otherwise enforce the lease contract by self-help or any available judicial procedure or nonjudicial procedure, including
administrative proceeding, arbitration, or the like, in accordance with this Article.
(4) Except as otherwise provided in Section 1-305(a) of this Article of the lease agreement, the rights and remedies referred to in
subsections (2) and (3) are cumulative.
(5) If the lease agreement covers both real property and goods, the party seeking enforcement may proceed under this Part as to the
goods, or under other applicable law as to both the real property and the goods in accordance with that party’s rights and remedies in
respect of the real property, in which case this Part does not apply.
(68 Del. Laws, c. 249, § 1; 74 Del. Laws, c. 332, § 22.)
§ 2A-502. Notice after default.
Except as otherwise provided in this Article or the lease agreement, the lessor or lessee in default under the lease contract is not entitled
to notice of default or notice of enforcement from the other party to the lease agreement.
(68 Del. Laws, c. 249, § 1.)
§ 2A-503. Modification or impairment of rights and remedies.
(1) Except as otherwise provided in this Article, the lease agreement may include rights and remedies for default in addition to or in
substitution for those provided in this Article and may limit or alter the measure of damages recoverable under this Article.
(2) Resort to a remedy provided under this Article or in the lease agreement is optional unless the remedy is expressly agreed to be
exclusive. If circumstances cause an exclusive or limited remedy to fail of its essential purpose, or provision for an exclusive remedy is
unconscionable, remedy may be had as provided in this Article.
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(3) Consequential damages may be liquidated under Section 2A-504, or may otherwise be limited, altered, or excluded unless the
limitation, alteration, or exclusion is unconscionable. Limitation, alteration or exclusion of consequential damages for injury to the person
in the case of consumer goods is prima facie unconscionable but limitation, alteration or exclusion of damages where the loss is commercial
is not prima facie unconscionable.
(4) Rights and remedies on default by the lessor or the lessee with respect to any obligation or promise collateral or ancillary to the
lease contract are not impaired by this Article.
(68 Del. Laws, c. 249, § 1.)
§ 2A-504. Liquidation of damages.
(1) Damages payable by either party for default, or any other act or omission, including indemnity for loss or diminution of anticipated
tax benefits or loss or damage to lessor’s residual interest, may be liquidated in the lease agreement but only at an amount or by a formula
that is reasonable in light of the then anticipated harm caused by the default or other act or omission.
(2) If the lease agreement provides for liquidation of damages, and such provision does not comply with subsection (1), or such provision
is an exclusive or limited remedy that circumstances cause to fail of its essential purpose, remedy may be had as provided in this Article.
(3) If the lessor justifiably withholds or stops delivery of goods because of the lessee’s default or insolvency (Section 2A-525 or
2A-526), the lessee is entitled to restitution of any amount by which the sum of his or her payments exceeds:
(a) The amount to which the lessor is entitled by virtue of terms liquidating the lessor’s damages in accordance with subsection (1); or
(b) In the absence of those terms, 20 percent of the then present value of the total rent the lessee was obligated to pay for the balance
of the lease term, or, in the case of a consumer lease, the lesser of such amount or $500.
(4) A lessee’s right to restitution under subsection (3) is subject to offset to the extent the lessor establishes:
(a) A right to recover damages under the provisions of this Article other than subsection (1); and
(b) The amount or value of any benefits received by the lessee directly or indirectly by reason of the lease contract.
(68 Del. Laws, c. 249, § 1; 70 Del. Laws, c. 186, § 1.)
§ 2A-505. Cancellation and termination and effect of cancellation, termination, rescission, or fraud on rights
and remedies.
(1) On cancellation of the lease contract, all obligations that are still executory on both sides are discharged, but any right based on
prior default or performance survives, and the cancelling party also retains any remedy for default of the whole lease contract or any
unperformed balance.
(2) On termination of the lease contract, all obligations that are still executory on both sides are discharged but any right based on
prior default or performance survives.
(3) Unless the contrary intention clearly appears, expressions of “cancellation,” “rescission,” or the like of the lease contract may not
be construed as a renunciation or discharge of any claim in damages for an antecedent default.
(4) Rights and remedies for material misrepresentation or fraud include all rights and remedies available under this Article for default.
(5) Neither rescission nor a claim for rescission of the lease contract nor rejection or return of the goods may bar or be deemed
inconsistent with a claim for damages or other right or remedy.
(68 Del. Laws, c. 249, § 1; 70 Del. Laws, c. 186, § 1.)
§ 2A-506. Statute of limitations.
(1) An action for default under a lease contract, including breach of warranty or indemnity, must be commenced within 4 years after
the cause of action accrued. In a lease contract that is not a consumer lease, the parties in the original lease contract may reduce the period
of limitation to not less than 1 year.
(2) A cause of action for default accrues when the act or omission on which the default or breach of warranty is based is or should
have been discovered by the aggrieved party, or when the default occurs, whichever is later. A cause of action for indemnity accrues
(a) in the case of an indemnity against liability, when the act or omission on which the claim for indemnity is based is or should have
been discovered by the indemnified party, whichever is later, or (b) in the case of an indemnity against loss or damage, when the person
indemnified makes payment thereof.
(3) If an action commenced within the time limited by subsection (1) is so terminated as to leave available a remedy by another action
for the same default or breach of warranty or indemnity, the other action may be commenced after the expiration of the time limited and
within 6 months after the termination of the first action unless the termination resulted from voluntary discontinuance or from dismissal
for failure or neglect to prosecute.
(4) This section does not alter the law on tolling of the statute of limitations nor does it apply to causes of action that have accrued
before this Article becomes effective.
(68 Del. Laws, c. 249, § 1.)
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§ 2A-507. Proof of market rent: Time and place.
(1) Damages based on market rent (Section 2A-519 or 2A-528) are determined according to the rent for the use of the goods concerned
for a lease term identical to the remaining lease term of the original lease agreement and prevailing at the times specified in Sections
2A-519 and 2A-528.
(2) If evidence of rent for the use of the goods concerned for a lease term identical to the remaining lease term of the original lease
agreement and prevailing at the times or places described in this Article is not readily available, the rent prevailing within any reasonable
time before or after the time described or at any other place or for a different lease term which in commercial judgment or under usage of
trade would serve as a reasonable substitute for the one described may be used, making any proper allowance for the difference, including
the cost of transporting the goods to or from the other place.
(3) Evidence of a relevant rent prevailing at a time or place or for a lease term other than the one described in this Article offered by
one party is not admissible unless and until he or she has given the other party notice the court finds sufficient to prevent unfair surprise.
(4) If the prevailing rent or value of any goods regularly leased in any established market is in issue, reports in official publications or
trade journals or in newspapers or periodicals of general circulation published as the reports of that market are admissible in evidence.
The circumstances of the preparation of the report may be shown to affect its weight but not its admissibility.
(68 Del. Laws, c. 249, § 1; 70 Del. Laws, c. 186, § 1.)
B Default by Lessor
§ 2A-508. Lessee’s remedies.
(1) If a lessor fails to deliver the goods in conformity to the lease contract (Section 2A-509) or repudiates the lease contract (Section
2A-402), or a lessee rightfully rejects the goods (Section 2A-509) or justifiably revokes acceptance of the goods (Section 2A-517), then
with respect to any goods involved, and with respect to all of the goods if under an installment lease contract the value of the whole lease
contract is substantially impaired (Section 2A-510), the lessor is in default under the lease contract and the lessee may:
(a) Cancel the lease contract (Section 2A-505(1));
(b) Recover so much of the rent and security as has been paid and is just under the circumstances;
(c) Cover and recover damages as to all goods affected whether or not they have been identified to the lease contract (Sections
2A-518 and 2A-520), or recover damages for nondelivery (Sections 2A-519 and 2A-520);
(d) Exercise any other rights or pursue any other remedies provided in the lease contract.
(2) If a lessor fails to deliver the goods in conformity to the lease contract or repudiates the lease contract, the lessee may also:
(a) If the goods have been identified, recover them (Section 2A-522); or
(b) In a proper case, obtain specific performance or replevy the goods (Section 2A-521).
(3) If a lessor is otherwise in default under a lease contract, the lessee may exercise the rights and pursue the remedies provided in the
lease contract, which may include a right to cancel the lease, and in Section 2A-519(3).
(4) If a lessor has breached a warranty, whether express or implied, the lessee may recover damages (Section 2A-519(4)).
(5) On rightful rejection or justifiable revocation of acceptance, a lessee has a security interest in goods in the lessee’s possession
or control for any rent and security that has been paid and any expenses reasonably incurred in their inspection, receipt, transportation,
and care and custody and may hold those goods and dispose of them in good faith and in a commercially reasonable manner, subject
to Section 2A-527(5).
(6) Subject to the provisions of Section 2A-407, a lessee, on notifying the lessor of the lessee’s intention to do so, may deduct all or any
part of the damages resulting from any default under the lease contract from any part of the rent still due under the same lease contract.
(68 Del. Laws, c. 249, § 1.)
§ 2A-509. Lessee’s rights on improper delivery; rightful rejection.
(1) Subject to the provisions of Section 2A-510 on default in installment lease contracts, if the goods or the tender or delivery fail in
any respect to conform to the lease contract, the lessee may reject or accept the goods or accept any commercial unit or units and reject
the rest of the goods.
(2) Rejection of goods is ineffective unless it is within a reasonable time after tender or delivery of the goods and the lessee seasonably
notifies the lessor.
(68 Del. Laws, c. 249, § 1.)
§ 2A-510. Installment lease contracts: Rejection and default.
(1) Under an installment lease contract a lessee may reject any delivery that is nonconforming if the nonconformity substantially impairs
the value of that delivery and cannot be cured or the nonconformity is a defect in the required documents; but if the nonconformity does
not fall within subsection (2) and the lessor or the supplier gives adequate assurance of its cure, the lessee must accept that delivery.
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Title 6 - Commerce and Trade
(2) Whenever nonconformity or default with respect to 1 or more deliveries substantially impairs the value of the installment lease
contract as a whole there is a default with respect to the whole. But, the aggrieved party reinstates the installment lease contract as a whole
if the aggrieved party accepts a nonconforming delivery without seasonably notifying of cancellation or brings an action with respect
only to past deliveries or demands performance as to future deliveries.
(68 Del. Laws, c. 249, § 1.)
§ 2A-511. Merchant lessee’s duties as to rightfully rejected goods.
(1) Subject to any security interest of a lessee (Section 2A-508(5)), if a lessor or a supplier has no agent or place of business at the
market of rejection, a merchant lessee, after rejection of goods in his or her possession or control, shall follow any reasonable instructions
received from the lessor or the supplier with respect to the goods. In the absence of those instructions, a merchant lessee shall make
reasonable efforts to sell, lease, or otherwise dispose of the goods for the lessor’s account if they threaten to decline in value speedily.
Instructions are not reasonable if on demand indemnity for expenses is not forthcoming.
(2) If a merchant lessee (subsection (1)) or any other lessee (Section 2A-512) disposes of goods, he or she is entitled to reimbursement
either from the lessor or the supplier or out of the proceeds for reasonable expenses of caring for and disposing of the goods and, if the
expenses include no disposition commission, to such commission as is usual in the trade, or, if there is none, to a reasonable sum not
exceeding 10 percent of the gross proceeds.
(3) In complying with this section or Section 2A-512, the lessee is held only to good faith. Good faith conduct hereunder is neither
acceptance or conversion nor the basis of an action for damages.
(4) A purchaser who purchases in good faith from a lessee pursuant to this section or Section 2A-512 takes the goods free of any rights
of the lessor and the supplier even though the lessee fails to comply with 1 or more of the requirements of this Article.
(68 Del. Laws, c. 249, § 1; 70 Del. Laws, c. 186, § 1.)
§ 2A-512. Lessee’s duties as to rightfully rejected goods.
(1) Except as otherwise provided with respect to goods that threaten to decline in value speedily (Section 2A-511) and subject to any
security interest of a lessee (Section 2A-508(5)):
(a) The lessee, after rejection of goods in the lessee’s possession, shall hold them with reasonable care at the lessor’s or the supplier’s
disposition for a reasonable time after the lessee’s seasonable notification of rejection;
(b) If the lessor or the supplier gives no instructions within a reasonable time after notification of rejection, the lessee may store the
rejected goods for the lessor’s or the supplier’s account or ship them to the lessor or the supplier or dispose of them for the lessor’s or
the supplier’s account with reimbursement in the manner provided in Section 2A-511; but
(c) The lessee has no further obligations with regard to goods rightfully rejected.
(2) Action by the lessee pursuant to subsection (1) is not acceptance or conversion.
(68 Del. Laws, c. 249, § 1.)
§ 2A-513. Cure by lessor of improper tender or delivery; replacement.
(1) If any tender or delivery by the lessor or the supplier is rejected because it is nonconforming and the time for performance has not
yet expired, the lessor or the supplier may seasonably notify the lessee of the lessor’s or the supplier’s intention to cure and may then
make a conforming delivery within the time provided in the lease contract.
(2) If the lessee rejects a nonconforming tender that the lessor or the supplier had reasonable grounds to believe would be acceptable
with or without money allowance, the lessor or the supplier may have a further reasonable time to substitute a conforming tender if he
or she seasonably notifies the lessee.
(68 Del. Laws, c. 249, § 1; 70 Del. Laws, c. 186, § 1.)
§ 2A-514. Waiver of lessee’s objections.
(1) In rejecting goods, a lessee’s failure to state a particular defect that is ascertainable by reasonable inspection precludes the lessee
from relying on the defect to justify rejection or to establish default:
(a) If, stated seasonably, the lessor or the supplier could have cured it (Section 2A-513); or
(b) Between merchants if the lessor or the supplier after rejection has made a request in writing for a full and final written statement
of all defects on which the lessee proposes to rely.
(2) A lessee’s failure to reserve rights when paying rent or other consideration against documents precludes recovery of the payment
for defects apparent in the documents.
(68 Del. Laws, c. 249, § 1; 74 Del. Laws, c. 332, § 23.)
§ 2A-515. Acceptance of goods.
(1) Acceptance of goods occurs after the lessee has had a reasonable opportunity to inspect the goods and
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(a) The lessee signifies or acts with respect to the goods in a manner that signifies to the lessor or the supplier that the goods are
conforming or that the lessee will take or retain them in spite of their nonconformity; or
(b) The lessee fails to make an effective rejection of the goods (Section 2A-509(2)).
(2) Acceptance of a part of any commercial unit is acceptance of that entire unit.
(68 Del. Laws, c. 249, § 1.)
§ 2A-516. Effect of acceptance of goods; notice of default; burden of establishing default after acceptance;
notice of claim or litigation to person answerable over.
(1) A lessee must pay rent for any goods accepted in accordance with the lease contract, with due allowance for goods rightfully
rejected or not delivered.
(2) A lessee’s acceptance of goods precludes rejection of the goods accepted. In the case of a finance lease, if made with knowledge of
a nonconformity, acceptance cannot be revoked because of it. In any other case, if made with knowledge of a nonconformity, acceptance
cannot be revoked because of it unless the acceptance was on the reasonable assumption that the nonconformity would be seasonably
cured. Acceptance does not of itself impair any other remedy provided by this Article or the lease agreement for nonconformity.
(3) If a tender has been accepted:
(a) Within a reasonable time after the lessee discovers or should have discovered any default, the lessee shall notify the lessor and
the supplier, if any, or be barred from any remedy against the party not notified;
(b) Except in the case of a consumer lease, within a reasonable time after the lessee receives notice of litigation for infringement or the
like (Section 2A-211) the lessee shall notify the lessor or be barred from any remedy over for liability established by the litigation; and
(c) The burden is on the lessee to establish any default.
(4) If a lessee is sued for breach of a warranty or other obligation for which a lessor or a supplier is answerable over, the following apply:
(a) The lessee may give the lessor or the supplier, or both, written notice of the litigation. If the notice states that the person notified
may come in and defend and that if the person notified does not do so that person will be bound in any action against that person by the
lessee by any determination of fact common to the 2 litigations, then unless the person notified after seasonable receipt of the notice
does come in and defend that person is so bound.
(b) The lessor or the supplier may demand in writing that the lessee turn over control of the litigation including settlement if the
claim is one for infringement or the like (Section 2A-211) or else be barred from any remedy over. If the demand states that the lessor
or the supplier agrees to bear all expense and to satisfy any adverse judgment, then unless the lessee after seasonable receipt of the
demand does turn over control the lessee is so barred.
(5) Subsections (3) and (4) apply to any obligation of a lessee to hold the lessor or the supplier harmless against infringement or the
like (Section 2A-211).
(68 Del. Laws, c. 249, § 1.)
§ 2A-517. Revocation of acceptance of goods.
(1) A lessee may revoke acceptance of a lot or commercial unit whose nonconformity substantially impairs its value to the lessee if
the lessee has accepted it:
(a) Except in the case of a finance lease, on the reasonable assumption that its nonconformity would be cured and it has not been
seasonably cured; or
(b) Without discovery of the nonconformity if the lessee’s acceptance was reasonably induced either by the lessor’s assurances or,
except in the case of a finance lease, by the difficulty of discovery before acceptance.
(2) Except in the case of a finance lease that is not a consumer lease, a lessee may revoke acceptance of a lot or commercial unit if the
lessor defaults under the lease contract and the default substantially impairs the value of that lot or commercial unit to the lessee.
(3) If the lease agreement so provides, the lessee may revoke acceptance of a lot or commercial unit because of other defaults by the
lessor.
(4) Revocation of acceptance must occur within a reasonable time after the lessee discovers or should have discovered the ground for
it and before any substantial change in condition of the goods which is not caused by the nonconformity. Revocation is not effective
until the lessee notifies the lessor.
(5) A lessee who so revokes has the same rights and duties with regard to the goods involved as if the lessee had rejected them.
(68 Del. Laws, c. 249, § 1.)
§ 2A-518. Cover, substitute goods.
(1) After a default by a lessor under the lease contract of the type described in Section 2A-508(1), or, if agreed, after other default
by the lessor, the lessee may cover by making any purchase or lease of or contract to purchase or lease goods in substitution for those
due from the lessor.
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(2) Except as otherwise provided with respect to damages liquidated in the lease agreement (Section 2A-504) or otherwise determined
pursuant to agreement of the parties (Sections 1-302 and 2A-503), 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 (i) 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 which is 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 (ii) any incidental or consequential damages, less expenses saved in consequence of the lessor’s default.
(3) If a lessee’s cover is by lease agreement that for any reason does not qualify for treatment under subsection (2), or is by purchase
or otherwise, the lessee may recover from the lessor as if the lessee had elected not to cover and Section 2A-519 governs.
(68 Del. Laws, c. 249, § 1; 74 Del. Laws, c. 332, § 24.)
§ 2A-519. Lessee’s damages for non-delivery, repudiation, default, and breach of warranty in regard to
accepted goods.
(1) Except as otherwise provided with respect to damages liquidated in the lease agreement (Section 2A-504) or otherwise determined
pursuant to agreement of the parties (Section 1-302 and Section 2A-503), 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 2A-518(2), or is by purchase or otherwise, the
measure of damages for non-delivery 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, less expenses saved
in consequence of the lessor’s default.
(2) Market rent is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of
the place of arrival.
(3) Except as otherwise agreed, if the lessee has accepted goods and given notification (Section 2A-516(3)), the measure of damages for
non-conforming tender or delivery or other default by a lessor is the loss resulting in the ordinary course of events from the lessor’s default
as determined in any manner that is reasonable together with incidental and consequential damages, less expenses saved in consequence
of the lessor’s default.
(4) Except as otherwise agreed, the measure of damages for breach of warranty is the present value at the time and place of acceptance
of the difference between the value of the use of the goods accepted and the value if they had been as warranted for the lease term, unless
special circumstances show proximate damages of a different amount, together with incidental and consequential damages, less expenses
saved in consequence of the lessor’s default or breach of warranty.
(68 Del. Laws, c. 249, § 1; 74 Del. Laws, c. 332, § 25.)
§ 2A-520. Lessee’s incidental and consequential damages.
(1) Incidental damages resulting from a lessor’s default include expenses reasonably incurred in inspection, receipt, transportation,
and care and custody of goods rightfully rejected or goods the acceptance of which is justifiably revoked, any commercially reasonable
charges, expenses, or commissions in connection with effecting cover, and any other reasonable expense incident to the default.
(2) Consequential damages resulting from a lessor’s default include:
(a) Any loss resulting from general or particular requirements and needs of which the lessor at the time of contracting had reason to
know and which could not reasonably be prevented by cover or otherwise; and
(b) Injury to person or property proximately resulting from any breach of warranty.
(68 Del. Laws, c. 249, § 1.)
§ 2A-521. Lessee’s right to specific performance or replevin.
(1) Specific performance may be decreed if the goods are unique or in other proper circumstances.
(2) A decree for specific performance may include any terms and conditions as to payment of the rent, damages, or other relief that
the court deems just.
(3) A lessee has a right of replevin, detinue, sequestration, claim and delivery, or the like for goods identified to the lease contract if
after reasonable effort the lessee is unable to effect cover for those goods or the circumstances reasonably indicate that the effort will
be unavailing.
(68 Del. Laws, c. 249, § 1.)
§ 2A-522. Lessee’s right to goods on lessor’s insolvency.
(1) Subject to subsection (2) and even though the goods have not been shipped, a lessee who has paid a part or all of the rent and
security for goods identified to a lease contract (Section 2A-217) on making and keeping good a tender of any unpaid portion of the rent
and security due under the lease contract may recover the goods identified from the lessor if the lessor becomes insolvent within 10 days
after receipt of the first installment of rent and security.
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(2) A lessee acquires the right to recover goods identified to a lease contract only if they conform to the lease contract.
(68 Del. Laws, c. 249, § 1.)
C Default by Lessee
§ 2A-523. Lessor’s remedies.
(1) If a lessee wrongfully rejects or revokes acceptance of goods or fails to make a payment when due or repudiates with respect to a part
or the whole, then, with respect to any goods involved, and with respect to all of the goods if under an installment lease contract the value
of the whole lease contract is substantially impaired (Section 2A-510), the lessee is in default under the lease contract and the lessor may:
(a) Cancel the lease contract (Section 2A-505(1));
(b) Proceed respecting goods not identified to the lease contract (Section 2A-524);
(c) Withhold delivery of the goods and take possession of goods previously delivered (section 2A-525);
(d) Stop delivery of the goods by any bailee (Section 2A-526);
(e) Dispose of the goods and recover damages (Section 2A-527), or retain the goods and recover damages (Section 2A-528), or in
a proper case recover rent (Section 2A-529);
(f) Exercise any other rights or pursue any other remedies provided in the lease contract.
(2) If a lessor does not fully exercise a right or obtain a remedy to which the lessor is entitled under subsection (1), the lessor may
recover the loss resulting in the ordinary course of events from the lessee’s default as determined in any reasonable manner, together with
incidental damages, less expenses saved in consequence of the lessee’s default.
(3) If a lessee is otherwise in default under a lease contract, the lessor may exercise the rights and pursue the remedies provided in the
lease contract, which may include a right to cancel the lease. In addition, unless otherwise provided in the lease contract:
(a) If the default substantially impairs the value of the lease contract to the lessor, the lessor may exercise the rights and pursue the
remedies provided in subsections (1) or (2); or
(b) If the default does not substantially impair the value of the lease contract to the lessor, the lessor may recover as provided in
subsection (2).
(68 Del. Laws, c. 249, § 1.)
§ 2A-524. Lessor’s right to identify goods to lease contract.
(1) After default by the lessee under the lease contract of the type described in Section 2A-523(1) or Section 2A-523(3)(a) or, if agreed,
after other default by the lessee, the lessor may:
(a) Identify to the lease contract conforming goods not already identified if at the time the lessor learned of the default they were
in the lessor’s or the supplier’s possession or control; and
(b) Dispose of goods (Section 2A-527(1)) that demonstrably have been intended for the particular lease contract even though those
goods are unfinished.
(2) If the goods are unfinished, in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective
realization, an aggrieved lessor or the supplier may either complete manufacture and wholly identify the goods to the lease contract or
cease manufacture and lease, sell, or otherwise dispose of the goods for scrap or salvage value or proceed in any other reasonable manner.
(68 Del. Laws, c. 249, § 1.)
§ 2A-525. Lessor’s right to possession of goods.
(1) If a lessor discovers the lessee to be insolvent, the lessor may refuse to deliver the goods.
(2) After a default by the lessee under the lease contract of the type described in Section 2A-523(1) or 2A-523(3)(a) or, if agreed, after
other default by the lessee, the lessor has the right to take possession of the goods. If the lease contract so provides, the lessor may require
the lessee to assemble the goods and make them available to the lessor at a place to be designated by the lessor which is reasonably
convenient to both parties. Without removal, the lessor may render unusable any goods employed in trade or business, and may dispose
of goods on the lessee’s premises (Section 2A-527).
(3) The lessor may proceed under subsection (2) without judicial process if it can be done without breach of the peace or the lessor
may proceed by action.
(68 Del. Laws, c. 249, § 1.)
§ 2A-526. Lessor’s stoppage of delivery in transit or otherwise.
(1) A lessor may stop delivery of goods in the possession of a carrier or other bailee if the lessor discovers the lessee to be insolvent
and may stop delivery of carload, truckload, planeload, or larger shipments of express or freight if the lessee repudiates or fails to make
a payment due before delivery, whether for rent, security, or otherwise under the lease contract, or for any other reason the lessor has a
right to withhold or take possession of the goods.
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Title 6 - Commerce and Trade
(2) In pursuing its remedies under subsection (1), the lessor may stop delivery until:
(a) Receipt of the goods by the lessee;
(b) Acknowledgment to the lessee by any bailee of the goods, except a carrier, that the bailee holds the goods for the lessee; or
(c) Such an acknowledgment to the lessee by a carrier via reshipment or as a warehouse.
(3) (a) To stop delivery, a lessor shall so notify as to enable the bailee by reasonable diligence to prevent delivery of the goods.
(b) After notification, the bailee shall hold and deliver the goods according to the directions of the lessor, but the lessor is liable to
the bailee for any ensuring charges or damages.
(c) A carrier who has issued a nonnegotiable bill of lading is not obliged to obey a notification to stop received from a person other
than the consignor.
(68 Del. Laws, c. 249, § 1; 74 Del. Laws, c. 332, § 26.)
§ 2A-527. Lessor’s rights to dispose of goods.
(1) After a default by a lessee under the lease contract of the type described in Section 2A-523(1) or 2A-523(3)(a) or after the lessor
refuses to deliver or takes possession of goods (Section 2A-525 or 2A-526), or, if agreed, after other default by a lessee, the lessor may
dispose of the goods concerned or the undelivered balance thereof by lease, sale, or otherwise.
(2) Except as otherwise provided with respect to damages liquidated in the lease agreement (Section 2A-504) or otherwise determined
pursuant to agreement of the parties (Section 1-302 and Section 2A-503), 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 (i) accrued and unpaid rent as of the date of the commencement of the term of the new lease
agreement, (ii) 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
which is comparable to the then remaining term of the original lease agreement, and (iii) any incidental damages allowed under Section
2A-530, less expenses saved in consequence of the lessee’s default.
(3) If the lessor’s disposition is by lease agreement that for any reason does not qualify for treatment under subsection (2), or is by sale
or otherwise, the lessor may recover from the lessee as if the lessor had elected not to dispose of the goods and Section 2A-528 governs.
(4) A subsequent buyer or lessee who buys or leases from the lessor in good faith for value as a result of a disposition under this section
takes the goods free of the original lease contract and any rights of the original lessee even though the lessor fails to comply with 1 or
more of the requirements of this Article.
(5) The lessor is not accountable to the lessee for any profit made on any disposition. A lessee who has rightfully rejected or justifiably
revoked acceptance shall account to the lessor for any excess over the amount of the lessee’s security interest (Section 2A-508(5)).
(68 Del. Laws, c. 249, § 1; 74 Del. Laws, c. 332, § 27.)
§ 2A-528. Lessor’s damages for non-acceptance, failure to pay, repudiation, or other default.
(1) Except as otherwise provided with respect to damages liquidated in the lease agreement (Section 2A-504) or otherwise determined
pursuant to agreement of the parties (Section 1-302 and Section 2A-503), 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 2A-527(2), or
is by sale or otherwise, the lessor may recover from the lessee as damages for a default of the type described in Section 2A-523(1) or
2A-523(3)(a), or, if agreed, for other default of the lessee, (i) 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, (ii) the present value as of the date determined under clause
(i) 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 (iii) any incidental damages allowed under
Section 2A-530, less 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 2A-530, due allowance for costs reasonably
incurred and due credit for payments or proceeds of disposition.
(68 Del. Laws, c. 249, § 1; 74 Del. Laws, c. 332, § 28.)
§ 2A-529. Lessor’s action for the rent.
(1) After default by the lessee under the lease contract of the type described in Section 2A-523(1) or 2A-523(3)(a) or, if agreed, after
other default by the lessee, if the lessor complies with subsection (2), the lessor may recover from the lessee as damages:
(a) For goods accepted by the lessee and not repossessed by or tendered to the lessor, and for conforming goods lost or damaged
within a commercially reasonable time after risk of loss passes to the lessee (Section 2A-219), (i) accrued and unpaid rent as of the
date of entry of judgment in favor of the lessor, (ii) the present value as of the same date of the rent for the then remaining lease term
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Title 6 - Commerce and Trade
of the lease agreement, and (iii) any incidental damages allowed under Section 2A-530, less expenses saved in consequence of the
lessee’s default; and
(b) For goods identified to the lease contract if the lessor is unable after reasonable effort to dispose of them at a reasonable price or
the circumstances reasonably indicate that effort will be unavailing, (i) accrued and unpaid rent as of the date of entry of judgment in
favor of the lessor, (ii) the present value as of the same date of the rent for the then remaining lease term of the lease agreement, and
(iii) any incidental damages allowed under Section 2A-530, less expenses saved in consequence of the lessee’s default.
(2) Except as provided in subsection (3), the lessor shall hold for the lessee for the remaining lease term of the lease agreement any
goods that have been identified to the lease contract and are in the lessor’s control.
(3) The lessor may dispose of the goods at any time before collection of the judgment for damages obtained pursuant to subsection (1).
If the disposition is before the end of the remaining lease term of the lease agreement, the lessor’s recovery against the lessee for damages
is governed by Section 2A-527 or Section 2A-528, and the lessor will cause an appropriate credit to be provided against a judgment for
damages to the extent that the amount of the judgment exceeds the recovery available pursuant to Section 2A-527 or 2A-528.
(4) Payment of the judgment for damages obtained pursuant to subsection (1) entitles the lessee to the use and possession of the goods
not then disposed of for the remaining lease term of and in accordance with the lease agreement.
(5) After default by the lessee under the lease contract of the type described in Section 2A-523(1) or Section 2A-523(3)(a) or, if agreed,
after other default by the lessee, a lessor who is held not entitled to rent under this section must nevertheless by awarded damages for
non-acceptance under Section 2A-527 or Section 2A-528.
(68 Del. Laws, c. 249, § 1.)
§ 2A-530. Lessor’s incidental damages.
Incidental damages to an aggrieved lessor include any commercially reasonable charges, expenses, or commissions incurred in stopping
delivery, in the transportation, care and custody of goods after the lessee’s default, in connection with return or disposition of the goods,
or otherwise resulting from the default.
(68 Del. Laws, c. 249, § 1.)
§ 2A-531. Standing to sue third parties for injury to goods.
(1) If a third party so deals with goods that have been identified to a lease contract as to cause actionable injury to a party to the lease
contract (a) the lessor has a right of action against the third party, and (b) the lessee also has a right of action against the third party if
the lessee:
(i) Has a security interest in the goods;
(ii) Has an insurable interest in the goods; or
(iii) Bears the risk of loss under the lease contract or has since the injury assumed that risk as against the lessor and the goods have
been converted or destroyed.
(2) If at the time of the injury the party plaintiff did not bear the risk of loss as against the other party to the lease contract and there
is no arrangement between them for disposition of the recovery, his or her suit or settlement, subject to his or her own interest, is as a
fiduciary for the other party to the lease contract.
(3) Either party with the consent of the other may sue for the benefit of whom it may concern.
(68 Del. Laws, c. 249, § 1; 70 Del. Laws, c. 186, § 1.)
§ 2A-532. Lessor’s rights to residual interest.
In addition to any other recovery permitted by this article or other law, the lessor may recover from the lessee an amount that will fully
compensate the lessor for any loss of or damage to the lessor’s residual interest in the goods caused by the default of the lessee.
(68 Del. Laws, c. 249, § 1.)
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Title 6 - Commerce and Trade
Subtitle I
Uniform Commercial Code
Article 3
Negotiable Instruments
Part 1
General Provisions and Definitions
§ 3-101. Short title.
This Article may be cited as Uniform Commercial Code — Negotiable Instruments.
(5A Del. C. 1953, § 3-101; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-102. Subject matter.
(a) This Article applies to negotiable instruments. It does not apply to money, to payment orders governed by Article 4A, or to securities
governed by Article 8.
(b) If there is conflict between this Article and Article 4 or 9, Articles 4 and 9 govern.
(c) Regulations of the Board of Governors of the Federal Reserve System and operating circulars of the Federal Reserve Banks supersede
any inconsistent provision of this Article to the extent of the inconsistency.
(5A Del. C. 1953, § 3-103; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-103. Definitions.
(a) In this Article:
(1) “Acceptor” means a drawee who has accepted a draft.
(2) “Drawee” means a person ordered in a draft to make payment.
(3) “Drawer” means a person who signs or is identified in a draft as a person ordering payment.
(4) [Deleted.]
(5) “Maker” means a person who signs or is identified in a note as a person undertaking to pay.
(6) “Order” means a written instruction to pay money signed by the person giving the instruction. The instruction may be addressed
to any person, including the person giving the instruction, or to one or more persons jointly or in the alternative but not in succession.
An authorization to pay is not an order unless the person authorized to pay is also instructed to pay.
(7) “Ordinary care” in the case of a person engaged in business means observance of reasonable commercial standards, prevailing
in the area in which the person is located, with respect to the business in which the person is engaged. In the case of a bank that takes
an instrument for processing for collection or payment by automated means, reasonable commercial standards do not require the bank
to examine the instrument if the failure to examine does not violate the bank’s prescribed procedures and the bank’s procedures do not
vary unreasonably from general banking usage not disapproved by this Article or Article 4.
(8) “Party” means a party to an instrument.
(9) “Promise” means a written undertaking to pay money signed by the person undertaking to pay. An acknowledgment of an
obligation by the obligor is not a promise unless the obligor also undertakes to pay the obligation.
(10) “Prove” with respect to a fact means to meet the burden of establishing the fact (Section 1-201(b)(8)).
(11) “Remitter” means a person who purchases an instrument from its issuer if the instrument is payable to an identified person
other than the purchaser.
(b) Other definitions applying to this Article and the sections in which they appear are:
“Acceptance”.
Section 3-409.
“Accommodated
party”.
Section 3-419.
“Accommodation
party”.
Section 3-419.
“Alteration”.
Section 3-407.
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Title 6 - Commerce and Trade
“Anomalous
indorsement”.
Section 3-205.
“Blank
indorsement”.
Section 3-205.
“Cashier’s
check”.
Section 3-104.
“Certificate
of
deposit”.
Section 3-104.
“Certified
check”.
Section 3-409.
“Check”.
Section 3-104.
“Consideration”.
Section 3-303.
“Draft”.
Section 3-104.
“Holder
in
due
course”.
Section 3-302.
“Incomplete
instrument”.
Section 3-115.
“Indorsement”.
Section 3-204.
“Indorser”.
Section 3-204.
“Instrument”.
Section 3-104.
“Issue”.
Section 3-105.
“Issuer”.
Section 3-105.
“Negotiable
instrument”.
Section 3-104.
“Negotiation”.
Section 3-201.
“Note”.
Section 3-104.
“Payable
Section 3-108.
Page 53
at
a
definite
time”.
Title 6 - Commerce and Trade
“Payable
on
demand”.
Section 3-108.
“Payable
to
bearer”.
Section 3-109.
“Payable
to
order”.
Section 3-109.
“Payment”.
Section 3-602.
“Person
entitled
to
enforce”.
Section 3-301.
“Presentment”.
Section 3-501.
“Reacquisition”.
Section 3-207.
“Special
indorsement”.
Section 3-205.
“Teller’s
check”.
Section 3-104.
“Transfer
of
Section 3-203.
“Traveler’s
instrument”.
check”.
Section 3-104.
“Value”.
Section 3-303.
(c) The following definitions in other Articles apply to this Article:
“Bank”.
Section 4-105.
“Banking
day”.
Section 4-104.
“Clearing
house”.
Section 4-104.
“Collecting
bank”.
Section 4-105.
“Depositary
bank”.
Section 4-105.
“Documentary
draft”.
Section 4-104.
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Title 6 - Commerce and Trade
“Intermediary
bank”.
Section 4-105.
“Item”.
Section 4-104.
“Payor
bank”.
Section 4-105.
“Suspends
payments”.
Section 4-104.
(d) In addition, Article 1 contains general definitions and principles of construction and interpretation applicable throughout this Article.
(5A Del. C. 1953, § 3-102; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3; 74 Del. Laws, c. 332, §§ 29, 30.)
§ 3-104. Negotiable instrument.
(a) Except as provided in subsections (c) and (d), “negotiable instrument” means an unconditional promise or order to pay a fixed
amount of money, with or without interest or other charges described in the promise or order, if it:
(1) Is payable to bearer or to order at the time it is issued or first comes into possession of a holder;
(2) Is payable on demand or at a definite time; and
(3) Does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the
payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure
payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the
benefit of any law intended for the advantage or protection of an obligor.
(b) “Instrument” means a negotiable instrument.
(c) An order that meets all of the requirements of subsection (a), except paragraph (1), and otherwise falls within the definition of
“check” in subsection (f) is a negotiable instrument and a check.
(d) A promise or order other than a check is not an instrument if, at the time it is issued or first comes into possession of a holder,
it contains a conspicuous statement, however expressed, to the effect that the promise or order is not negotiable or is not an instrument
governed by this Article.
(e) An instrument is a “note” if it is a promise and is a “draft” if it is an order. If an instrument falls within the definition of both “note”
and “draft,” a person entitled to enforce the instrument may treat it as either.
(f) “Check” means (i) a draft, other than a documentary draft, payable on demand and drawn on a bank or (ii) a cashier’s check or
teller’s check. An instrument may be a check even though it is described on its face by another term, such as “money order.”
(g) “Cashier’s check” means a draft with respect to which the drawer and drawee are the same bank or branches of the same bank.
(h) “Teller’s check” means a draft drawn by a bank (i) on another bank, or (ii) payable at or through a bank.
(i) “Traveler’s check” means an instrument that (i) is payable on demand, (ii) is drawn on or payable at or through a bank, (iii) is
designated by the term “traveler’s check” or by a substantially similar term, and (iv) requires, as a condition to payment, a countersignature
by a person whose specimen signature appears on the instrument.
(j) “Certificate of deposit” means an instrument containing an acknowledgment by a bank that a sum of money has been received by
the bank and a promise by the bank to repay the sum of money. A certificate of deposit is a note of the bank.
(5A Del. C. 1953, § 3-104; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-105. Issue of instrument.
(a) “Issue” means the first delivery of an instrument by the maker or drawer, whether to a holder or nonholder, for the purpose of giving
rights on the instrument to any person.
(b) An unissued instrument, or an unissued incomplete instrument that is completed, is binding on the maker or drawer, but nonissuance
is a defense. An instrument that is conditionally issued or is issued for a special purpose is binding on the maker or drawer, but failure
of the condition or special purpose to be fulfilled is a defense.
(c) “Issuer” applies to issued and unissued instruments and means a maker or drawer of an instrument.
(70 Del. Laws, c. 86, § 3.)
§ 3-106. Unconditional promise or order.
(a) Except as provided in this section, for the purposes of Section 3-104(a), a promise or order is unconditional unless it states (i) an
express condition to payment, (ii) that the promise or order is subject to or governed by another writing, or (iii) that rights or obligations
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Title 6 - Commerce and Trade
with respect to the promise or order are stated in another writing. A reference to another writing does not of itself make the promise or
order conditional.
(b) A promise or order is not made conditional (i) by a reference to another writing for a statement of rights with respect to collateral,
prepayment, or acceleration, or (ii) because payment is limited to resort to a particular fund or source.
(c) If a promise or order requires, as a condition to payment, a countersignature by a person whose specimen signature appears on the
promise or order, the condition does not make the promise or order conditional for the purposes of Section 3-104(a). If the person whose
specimen signature appears on an instrument fails to countersign the instrument, the failure to countersign is a defense to the obligation
of the issuer, but the failure does not prevent a transferee of the instrument from becoming a holder of the instrument.
(d) If a promise or order at the time it is issued or first comes into possession of a holder contains a statement, required by applicable
statutory or administrative law, to the effect that the rights of a holder or transferee are subject to claims or defenses that the issuer could
assert against the original payee, the promise or order is not thereby made conditional for the purposes of Section 3-104(a); but if the
promise or order is an instrument, there cannot be a holder in due course of the instrument.
(5A Del. C. 1953, § 3-105; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-107. Instrument payable in foreign money.
Unless the instrument otherwise provides, an instrument that states the amount payable in foreign money may be paid in the foreign
money or in an equivalent amount in dollars calculated by using the current bank-offered spot rate at the place of payment for the purchase
of dollars on the day on which the instrument is paid.
(5A Del. C. 1953, § 3-107; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-108. Payable on demand or at definite time.
(a) A promise or order is “payable on demand” if it (i) states that it is payable on demand or at sight, or otherwise indicates that it is
payable at the will of the holder, or (ii) does not state any time of payment.
(b) A promise or order is “payable at a definite time” if it is payable on elapse of a definite period of time after sight or acceptance
or at a fixed date or dates or at a time or times readily ascertainable at the time the promise or order is issued, subject to rights of (i)
prepayment, (ii) acceleration, (iii) extension at the option of the holder, or (iv) extension to a further definite time at the option of the
maker or acceptor or automatically upon or after a specified act or event.
(c) If an instrument, payable at a fixed date, is also payable upon demand made before the fixed date, the instrument is payable on
demand until the fixed date and, if demand for payment is not made before that date, becomes payable at a definite time on the fixed date.
(5A Del. C. 1953, § 3-108; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-109. Payable to bearer or to order.
(a) A promise or order is payable to bearer if it:
(1) States that it is payable to bearer or to the order of bearer or otherwise indicates that the person in possession of the promise
or order is entitled to payment;
(2) Does not state a payee; or
(3) States that it is payable to or to the order of cash or otherwise indicates that it is not payable to an identified person.
(b) A promise or order that is not payable to bearer is payable to order if it is payable (i) to the order of an identified person or (ii) to
an identified person or order. A promise or order that is payable to order is payable to the identified person.
(c) An instrument payable to bearer may become payable to an identified person if it is specially indorsed pursuant to Section 3-205(a).
An instrument payable to an identified person may become payable to bearer if it is indorsed in blank pursuant to Section 3-205(b).
(5A Del. C. 1953, § 3-111; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-110. Identification of person to whom instrument is payable.
(a) The person to whom an instrument is initially payable is determined by the intent of the person, whether or not authorized, signing
as, or in the name or behalf of, the issuer of the instrument. The instrument is payable to the person intended by the signer even if that
person is identified in the instrument by a name or other identification that is not that of the intended person. If more than one person
signs in the name or behalf of the issuer of an instrument and all the signers do not intend the same person as payee, the instrument is
payable to any person intended by one or more of the signers.
(b) If the signature of the issuer of an instrument is made by automated means, such as a check-writing machine, the payee of the
instrument is determined by the intent of the person who supplied the name or identification of the payee, whether or not authorized
to do so.
(c) A person to whom an instrument is payable may be identified in any way, including by name, identifying number, office, or account
number. For the purpose of determining the holder of an instrument, the following rules apply:
(1) If an instrument is payable to an account and the account is identified only by number, the instrument is payable to the person to
whom the account is payable. If an instrument is payable to an account identified by number and by the name of a person, the instrument
is payable to the named person, whether or not that person is the owner of the account identified by number.
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Title 6 - Commerce and Trade
(2) If an instrument is payable to:
(i) A trust, an estate, or a person described as trustee or representative of a trust or estate, the instrument is payable to the trustee,
the representative, or a successor of either, whether or not the beneficiary or estate is also named;
(ii) A person described as agent or similar representative of a named or identified person, the instrument is payable to the
represented person, the representative, or a successor of the representative;
(iii) A fund or organization that is not a legal entity, the instrument is payable to a representative of the members of the fund
or organization; or
(iv) An office or to a person described as holding an office, the instrument is payable to the named person, the incumbent of the
office, or a successor to the incumbent.
(d) If an instrument is payable to two or more persons alternatively, it is payable to any of them and may be negotiated, discharged,
or enforced by any or all of them in possession of the instrument. If an instrument is payable to two or more persons not alternatively,
it is payable to all of them and may be negotiated, discharged, or enforced only by all of them. If an instrument payable to two or more
persons is ambiguous as to whether it is payable to the persons alternatively, the instrument is payable to the persons alternatively.
(5A Del. C. 1953, § 3-110; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-111. Place of payment.
Except as otherwise provided for items in Article 4, an instrument is payable at the place of payment stated in the instrument. If no
place of payment is stated, an instrument is payable at the address of the drawee or maker stated in the instrument. If no address is stated,
the place of payment is the place of business of the drawee or maker. If a drawee or maker has more than one place of business, the place
of payment is any place of business of the drawee or maker chosen by the person entitled to enforce the instrument. If the drawee or maker
has no place of business, the place of payment is the residence of the drawee or maker.
(5A Del. C. 1953, § 3-121; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-112. Interest.
(a) Unless otherwise provided in the instrument, (i) an instrument is not payable with interest, and (ii) interest on an interest-bearing
instrument is payable from the date of the instrument.
(b) Interest may be stated in an instrument as a fixed or variable amount of money or it may be expressed as a fixed or variable rate or
rates. The amount or rate of interest may be stated or described in the instrument in any manner and may require reference to information
not contained in the instrument. If an instrument provides for interest, but the amount of interest payable cannot be ascertained from the
description, interest is payable at the judgment rate in effect at the place of payment of the instrument and at the time interest first accrues.
(5A Del. C. 1953, § 3-106; 55 Del. Laws, c. 349; 67 Del. Laws, c. 330, § 1; 70 Del. Laws, c. 86, § 3.)
§ 3-113. Date of instrument.
(a) An instrument may be antedated or postdated. The date stated determines the time of payment if the instrument is payable at a fixed
period after date. Except as provided in Section 4-401(c), an instrument payable on demand is not payable before the date of the instrument.
(b) If an instrument is undated, its date is the date of its issue or, in the case of an unissued instrument, the date it first comes into
possession of a holder.
(5A Del. C. 1953, § 3-114; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-114. Contradictory terms of instrument.
If an instrument contains contradictory terms, typewritten terms prevail over printed terms, handwritten terms prevail over both, and
words prevail over numbers.
(5A Del. C. 1953, § 3-118; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-115. Incomplete instrument.
(a) “Incomplete instrument” means a signed writing, whether or not issued by the signer, the contents of which show at the time of
signing that it is incomplete but that the signer intended it to be completed by the addition of words or numbers.
(b) Subject to subsection (c), if an incomplete instrument is an instrument under Section 3-104, it may be enforced according to its
terms if it is not completed, or according to its terms as augmented by completion. If an incomplete instrument is not an instrument under
Section 3-104, but, after completion, the requirements of Section 3-104 are met, the instrument may be enforced according to its terms
as augmented by completion.
(c) If words or numbers are added to an incomplete instrument without authority of the signer, there is an alteration of the incomplete
instrument under Section 3-407.
(d) The burden of establishing that words or numbers were added to an incomplete instrument without authority of the signer is on
the person asserting the lack of authority.
(5A Del. C. 1953, § 3-115; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
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§ 3-116. Joint and several liability; contribution.
(a) Except as otherwise provided in the instrument, two or more persons who have the same liability on an instrument as makers,
drawers, acceptors, indorsers who indorse as joint payees, or anomalous indorsers are jointly and severally liable in the capacity in which
they sign.
(b) Except as provided in Section 3-419(e) or by agreement of the affected parties, a party having joint and several liability who pays the
instrument is entitled to receive from any party having the same joint and several liability contribution in accordance with applicable law.
(c) Discharge of one party having joint and several liability by a person entitled to enforce the instrument does not affect the right under
subsection (b) of a party having the same joint and several liability to receive contribution from the party discharged.
(5A Del. C. 1953, § 3-116; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-117. Other agreements affecting instrument.
Subject to applicable law regarding exclusion of proof of contemporaneous or previous agreements, the obligation of a party to an
instrument to pay the instrument may be modified, supplemented, or nullified by a separate agreement of the obligor and a person entitled
to enforce the instrument, if the instrument is issued or the obligation is incurred in reliance on the agreement or as part of the same
transaction giving rise to the agreement. To the extent an obligation is modified, supplemented, or nullified by an agreement under this
section, the agreement is a defense to the obligation.
(5A Del. C. 1953, § 3-119; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-118. Statute of limitations.
(a) Except as provided in subsection (e), an action to enforce the obligation of a party to pay a note payable at a definite time must
be commenced within six years after the due date or dates stated in the note or, if a due date is accelerated, within six years after the
accelerated due date.
(b) Except as provided in subsection (d) or (e), if demand for payment is made to the maker of a note payable on demand, an action
to enforce the obligation of a party to pay the note must be commenced within six years after the demand. If no demand for payment
is made to the maker, an action to enforce the note is barred if neither principal nor interest on the note has been paid for a continuous
period of 10 years.
(c) Except as provided in subsection (d), an action to enforce the obligation of a party to an unaccepted draft to pay the draft must be
commenced within three years after dishonor of the draft or 10 years after the date of the draft, whichever period expires first.
(d) An action to enforce the obligation of the acceptor of a certified check or the issuer of a teller’s check, cashier’s check, or traveler’s
check must be commenced within three years after demand for payment is made to the acceptor or issuer, as the case may be.
(e) An action to enforce the obligation of a party to a certificate of deposit to pay the instrument must be commenced within six years
after demand for payment is made to the maker, but if the instrument states a due date and the maker is not required to pay before that
date, the six-year period begins when a demand for payment is in effect and the due date has passed.
(f) An action to enforce the obligation of a party to pay an accepted draft, other than a certified check, must be commenced (i) within
six years after the due date or dates stated in the draft or acceptance if the obligation of the acceptor is payable at a definite time, or (ii)
within six years after the date of the acceptance if the obligation of the acceptor is payable on demand.
(g) Unless governed by other law regarding claims for indemnity or contribution, an action (i) for conversion of an instrument, for
money had and received, or like action based on conversion, (ii) for breach of warranty, or (iii) to enforce an obligation, duty, or right
arising under this Article and not governed by this section must be commenced within three years after the [cause of action] accrues.
(h) This section is not intended to affect the common law rule in this State pertaining to instruments under seal.
(5A Del. C. 1953, § 3-122; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-119. Notice of right to defend action.
In an action for breach of an obligation for which a third person is answerable over pursuant to this Article or Article 4, the defendant
may give the third person written notice of the litigation, and the person notified may then give similar notice to any other person who is
answerable over. If the notice states (i) that the person notified may come in and defend and (ii) that failure to do so will bind the person
notified in an action later brought by the person giving the notice as to any determination of fact common to the two litigations, the person
notified is so bound unless after seasonable receipt of the notice the person notified does come in and defend.
(70 Del. Laws, c. 86, § 3.)
§§ 3-120 — 3-122.
Part 2
Negotiation, Transfer, and Indorsement
§ 3-201. Negotiation.
(a) “Negotiation” means a transfer of possession, whether voluntary or involuntary, or an instrument by a person other than the issuer
to a person who thereby becomes its holder.
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(b) Except for negotiation by a remitter, if an instrument is payable to an identified person, negotiation requires transfer of possession of
the instrument and its indorsement by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of possession alone.
(5A Del. C. 1953, § 3-202; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-202. Negotiation subject to rescission.
(a) Negotiation is effective even if obtained (i) from an infant, a corporation exceeding its powers, or a person without capacity, (ii) by
fraud, duress, or mistake, or (iii) in breach of duty or as part of an illegal transaction.
(b) To the extent permitted by other law, negotiation may be rescinded or may be subject to other remedies, but those remedies may
not be asserted against a subsequent holder in due course or a person paying the instrument in good faith and without knowledge of facts
that are a basis for rescission or other remedy.
(5A Del. C. 1953, § 3-207; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-203. Transfer of instrument; rights acquired by transfer.
(a) An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving
delivery the right to enforce the instrument.
(b) Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the
instrument, including any right as a holder in due course, but the transferee cannot acquire rights of a holder in due course by a transfer,
directly or indirectly, from a holder in due course if the transferee engaged in fraud or illegality affecting the instrument.
(c) Unless otherwise agreed, if an instrument is transferred for value and the transferee does not become a holder because of lack of
indorsement by the transferor, the transferee has a specifically enforceable right to the unqualified indorsement of the transferor, but
negotiation of the instrument does not occur until the indorsement is made.
(d) If a transferor purports to transfer less than the entire instrument, negotiation of the instrument does not occur. The transferee obtains
no rights under this Article and has only the rights of a partial assignee.
(5A Del. C. 1953, § 3-201; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-204. Indorsement.
(a) “Indorsement” means a signature, other than that of a signer as maker, drawer, or acceptor, that alone or accompanied by other words
is made on an instrument for the purpose of (i) negotiating the instrument, (ii) restricting payment of the instrument, or (iii) incurring
indorser’s liability on the instrument, but regardless of the intent of the signer, a signature and its accompanying words are an indorsement
unless the accompanying words, terms of the instrument, place of the signature, or other circumstances unambiguously indicate that the
signature was made for a purpose other than indorsement. For the purpose of determining whether a signature is made on an instrument,
a paper affixed to the instrument is a part of the instrument.
(b) “Indorser” means a person who makes an indorsement.
(c) For the purpose of determining whether the transferee of an instrument is a holder, an indorsement that transfers a security interest
in the instrument is effective as an unqualified indorsement of the instrument.
(d) If an instrument is payable to a holder under a name that is not the name of the holder, indorsement may be made by the holder
in the name stated in the instrument or in the holder’s name or both, but signature in both names may be required by a person paying
or taking the instrument for value or collection.
(70 Del. Laws, c. 86, § 3.)
§ 3-205. Special indorsement; blank indorsement; anomalous indorsement.
(a) If an indorsement is made by the holder of an instrument, whether payable to an identified person or payable to bearer, and the
indorsement identifies a person to whom it makes the instrument payable, it is a “special indorsement.” When specially indorsed, an
instrument becomes payable to the identified person and may be negotiated only by the indorsement of that person. The principles stated
in Section 3-110 apply to special indorsements.
(b) If an indorsement is made by the holder of an instrument and it is not a special indorsement, it is a “blank indorsement.” When
indorsed in blank, an instrument becomes payable to bearer and may be negotiated by transfer of possession alone until specially indorsed.
(c) The holder may convert a blank indorsement that consists only of a signature into a special indorsement by writing, above the
signature of the indorser, words identifying the person to whom the instrument is made payable.
(d) “Anomalous indorsement” means an indorsement made by a person who is not the holder of the instrument. An anomalous
indorsement does not affect the manner in which the instrument may be negotiated.
(5A Del. C. 1953, § 3-204; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-206. Restrictive indorsement.
(a) An indorsement limiting payment to a particular person or otherwise prohibiting further transfer or negotiation of the instrument
is not effective to prevent further transfer or negotiation of the instrument.
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(b) An indorsement stating a condition to the right of the indorsee to receive payment does not affect the right of the indorsee to enforce
the instrument. A person paying the instrument or taking it for value or collection may disregard the condition, and the rights and liabilities
of that person are not affected by whether the condition has been fulfilled.
(c) If an instrument bears an indorsement (i) described in Section 4-201(b), or (ii) in blank or to a particular bank using the words
“for deposit,” “for collection,” or other words indicating a purpose of having the instrument collected by a bank for the indorser or for
a particular account, the following rules apply:
(1) A person, other than a bank, who purchases the instrument when so indorsed converts the instrument unless the amount paid for
the instrument is received by the indorser or applied consistently with the indorsement.
(2) A depositary bank that purchases the instrument or takes it for collection when so indorsed converts the instrument unless the
amount paid by the bank with respect to the instrument is received by the indorser or applied consistently with the indorsement.
(3) A payor bank that is also the depositary bank or that takes the instrument for immediate payment over the counter from a person
other than a collecting bank converts the instrument unless the proceeds of the instrument are received by the indorser or applied
consistently with the indorsement.
(4) Except as otherwise provided in paragraph (3), a payor bank or intermediary bank may disregard the indorsement and is not liable
if the proceeds of the instrument are not received by the indorser or applied consistently with the indorsement.
(d) Except for an indorsement covered by subsection (c), if an instrument bears an indorsement using words to the effect that payment
is to be made to the indorsee as agent, trustee, or other fiduciary for the benefit of the indorser or another person, the following rules apply:
(1) Unless there is notice of breach of fiduciary duty as provided in Section 3-307, a person who purchases the instrument from the
indorsee or takes the instrument from the indorsee for collection or payment may pay the proceeds of payment or the value given for
the instrument to the indorsee without regard to whether the indorsee violates a fiduciary duty to the indorser.
(2) A subsequent transferee of the instrument or person who pays the instrument is neither given notice nor otherwise affected by
the restriction in the indorsement unless the transferee or payor knows that the fiduciary dealt with the instrument or its proceeds in
breach of fiduciary duty.
(e) The presence on an instrument of an indorsement to which this section applies does not prevent a purchaser of the instrument from
becoming a holder in due course of the instrument unless the purchaser is a converter under subsection (c) or has notice or knowledge
of breach of fiduciary duty as stated in subsection (d).
(f) In an action to enforce the obligation of a party to pay the instrument, the obligor has a defense if payment would violate an
indorsement to which this section applies and the payment is not permitted by this section.
(5A Del. C. 1953, § 3-206; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-207. Reacquisition.
Reacquisition of an instrument occurs if it is transferred to a former holder, by negotiation or otherwise. A former holder who reacquires
the instrument may cancel indorsements made after the reacquirer first became a holder of the instrument. If the cancellation causes the
instrument to be payable to the reacquirer or to bearer, the reacquirer may negotiate the instrument. An indorser whose indorsement is
canceled is discharged, and the discharge is effective against any subsequent holder.
(5A Del. C. 1953, § 3-208; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-208.
Part 3
Enforcement of Instruments
§ 3-301. Person entitled to enforce instrument.
“Person entitled to enforce” an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who
has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section
3-309 or 3-418(d). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument
or is in wrongful possession of the instrument.
(5A Del. C. 1953, § 3-301; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-302. Holder in due course.
(a) Subject to subsection (c) and Section 3-106(d), “holder in due course” means the holder of an instrument if:
(1) The instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not
otherwise so irregular or incomplete as to call into question its authenticity; and
(2) The holder took the instrument (i) for value, (ii) in good faith, (iii) without notice that the instrument is overdue or has been
dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series, (iv) without
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notice that the instrument contains an unauthorized signature or has been altered, (v) without notice of any claim to the instrument
described in Section 3-306, and (vi) without notice that any party has a defense or claim in recoupment described in Section 3-305(a).
(b) Notice of discharge of a party, other than discharge in an insolvency proceeding, is not notice of a defense under subsection (a),
but discharge is effective against a person who became a holder in due course with notice of the discharge. Public filing or recording of
a document does not of itself constitute notice of a defense, claim in recoupment, or claim to the instrument.
(c) Except to the extent a transferor or predecessor in interest has rights as a holder in due course, a person does not acquire rights of a
holder in due course of an instrument taken (i) by legal process or by purchase in an execution, bankruptcy, or creditor’s sale or similar
proceeding, (ii) by purchase as part of a bulk transaction not in ordinary course of business of the transferor, or (iii) as the successor in
interest to an estate or other organization.
(d) If, under Section 3-303(a)(1), the promise of performance that is the consideration for an instrument has been partially performed,
the holder may assert rights as a holder in due course of the instrument only to the fraction of the amount payable under the instrument
equal to the value of the partial performance divided by the value of the promised performance.
(e) If (i) the person entitled to enforce an instrument has only a security interest in the instrument and (ii) the person obliged to pay
the instrument has a defense, claim in recoupment, or claim to the instrument that may be asserted against the person who granted the
security interest, the person entitled to enforce the instrument may assert rights as a holder in due course only to an amount payable under
the instrument which, at the time of enforcement of the instrument, does not exceed the amount of the unpaid obligation secured.
(f) To be effective, notice must be received at a time and in a manner that gives a reasonable opportunity to act on it.
(g) This section is subject to any law limiting status as a holder in due course in particular classes of transactions.
(5A Del. C. 1953, § 3-302; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-303. Value and consideration.
(a) An instrument is issued or transferred for value if:
(1) The instrument is issued or transferred for a promise of performance, to the extent the promise has been performed;
(2) The transferee acquires a security interest or other lien in the instrument other than a lien obtained by judicial proceeding;
(3) The instrument is issued or transferred as payment of, or as security for, an antecedent claim against any person, whether or
not the claim is due;
(4) The instrument is issued or transferred in exchange for a negotiable instrument; or
(5) The instrument is issued or transferred in exchange for the incurring of an irrevocable obligation to a third party by the person
taking the instrument.
(b) “Consideration” means any consideration sufficient to support a simple contract. The drawer or maker of an instrument has a defense
if the instrument is issued without consideration. If an instrument is issued for a promise of performance, the issuer has a defense to
the extent performance of the promise is due and the promise has not been performed. If an instrument is issued for value as stated in
subsection (a), the instrument is also issued for consideration.
(5A Del. C. 1953, § 3-303; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-304. Overdue instrument.
(a) An instrument payable on demand becomes overdue at the earliest of the following times:
(1) On the day after the day demand for payment is duly made;
(2) If the instrument is a check, 90 days after its date; or
(3) If the instrument is not a check, when the instrument has been outstanding for a period of time after its date which is unreasonably
long under the circumstances of the particular case in light of the nature of the instrument and usage of the trade.
(b) With respect to an instrument payable at a definite time the following rules apply:
(1) If the principal is payable in installments and a due date has not been accelerated, the instrument becomes overdue upon default
under the instrument for nonpayment of an installment, and the instrument remains overdue until the default is cured.
(2) If the principal is not payable in installments and the due date has not been accelerated, the instrument becomes overdue on the
day after the due date.
(3) If a due date with respect to principal has been accelerated, the instrument becomes overdue on the day after the accelerated
due date.
(c) Unless the due date of principal has been accelerated, an instrument does not become overdue if there is default in payment of
interest but no default in payment of principal.
(70 Del. Laws, c. 86, § 3.)
§ 3-305. Defenses and claims in recoupment.
(a) Except as stated in subsection (b), the right to enforce the obligation of a party to pay an instrument is subject to the following:
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(1) A defense of the obligor based on (i) infancy of the obligor to the extent it is a defense to a simple contract, (ii) duress, lack of
legal capacity, or illegality of the transaction which, under other law, nullifies the obligation of the obligor, (iii) fraud that induced the
obligor to sign the instrument with neither knowledge nor reasonable opportunity to learn of its character or its essential terms, or (iv)
discharge of the obligor in insolvency proceedings;
(2) A defense of the obligor stated in another section of this article or a defense of the obligor that would be available if the person
entitled to enforce the instrument were enforcing a right to payment under a simple contract; and
(3) A claim in recoupment of the obligor against the original payee of the instrument if the claim arose from the transaction that gave
rise to the instrument; but the claim of the obligor may be asserted against a transferee of the instrument only to reduce the amount
owing on the instrument at the time the action is brought.
(b) The right of a holder in due course to enforce the obligation of a party to pay the instrument is subject to defenses of the obligor stated
in subsection (a)(1), but is not subject to defenses of the obligor stated in subsection (a)(2) or claims in recoupment stated in subsection
(a)(3) against a person other than the holder.
(c) Except as stated in subsection (d), in an action to enforce the obligation of a party to pay the instrument, the obligor may not
assert against the person entitled to enforce the instrument a defense, claim in recoupment, or claim to the instrument (Section 3-306) of
another person, but the other person’s claim to the instrument may be asserted by the obligor if the other person is joined in the action and
personally asserts the claim against the person entitled to enforce the instrument. An obligor is not obliged to pay the instrument if the
person seeking enforcement of the instrument does not have rights of a holder in due course and the obligor proves that the instrument
is a lost or stolen instrument.
(d) In an action to enforce the obligation of an accommodation party to pay an instrument, the accommodation party may assert against
the person entitled to enforce the instrument any defense or claim in recoupment under subsection (a) that the accommodated party could
assert against the person entitled to enforce the instrument, except the defenses of discharge in insolvency proceedings, infancy, and lack
of legal capacity.
(5A Del. C. 1953, § 3-305; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-306. Claims to an instrument.
A person taking an instrument, other than a person having rights of a holder in due course, is subject to a claim of a property or
possessory right in the instrument or its proceeds, including a claim to rescind a negotiation and to recover the instrument or its proceeds.
A person having rights of a holder in due course takes free of the claim to the instrument.
(5A Del. C. 1953, § 3-306; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-307. Notice of breach of fiduciary duty.
(a) In this section:
(1) “Fiduciary” means an agent, trustee, partner, corporate officer or director, or other representative owing a fiduciary duty with
respect to an instrument.
(2) “Represented person” means the principal, beneficiary, partnership, corporation, or other person to whom the duty stated in
paragraph (1) is owed.
(b) If (i) an instrument is taken from a fiduciary for payment or collection or for value, (ii) the taker has knowledge of the fiduciary
status of the fiduciary, and (iii) the represented person makes a claim to the instrument or its proceeds on the basis that the transaction
of the fiduciary is a breach of fiduciary duty, the following rules apply:
(1) Notice of breach of fiduciary duty by the fiduciary is notice of the claim of the represented person.
(2) In the case of an instrument payable to the represented person or the fiduciary as such, the taker has notice of the breach of
fiduciary duty if the instrument is (i) taken in payment of or as security for a debt known by the taker to be the personal debt of the
fiduciary, (ii) taken in a transaction known by the taker to be for the personal benefit of the fiduciary, or (iii) deposited to an account
other than an account of the fiduciary, as such, or an account of the represented person.
(3) If an instrument is issued by the represented person or the fiduciary as such, and made payable to the fiduciary personally, the
taker does not have notice of the breach of fiduciary duty unless the taker knows of the breach of fiduciary duty.
(4) If an instrument is issued by the represented person or the fiduciary as such, to the taker as payee, the taker has notice of the
breach of fiduciary duty if the instrument is (i) taken in payment of or as security for a debt known by the taker to be the personal debt
of the fiduciary, (ii) taken in a transaction known by the taker to be for the personal benefit of the fiduciary, or (iii) deposited to an
account other than an account of the fiduciary, as such, or an account of the represented person.
(5A Del. C. 1953, § 3-304; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-308. Proof of signatures and status as holder in due course.
(a) In an action with respect to an instrument, the authenticity of, and authority to make, each signature on the instrument is admitted
unless specifically denied in the pleadings. If the validity of a signature is denied in the pleadings, the burden of establishing validity is on
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the person claiming validity, but the signature is presumed to be authentic and authorized unless the action is to enforce the liability of the
purported signer and the signer is dead or incompetent at the time of trial of the issue of validity of the signature. If an action to enforce
the instrument is brought against a person as the undisclosed principal of a person who signed the instrument as a party to the instrument,
the plaintiff has the burden of establishing that the defendant is liable on the instrument as a represented person under Section 3-402(a).
(b) If the validity of signatures is admitted or proved and there is compliance with subsection (a), a plaintiff producing the instrument is
entitled to payment if the plaintiff proves entitlement to enforce the instrument under Section 3-301, unless the defendant proves a defense
or claim in recoupment. If a defense or claim in recoupment is proved, the right to payment of the plaintiff is subject to the defense or claim,
except to the extent the plaintiff proves that the plaintiff has rights of a holder in due course which are not subject to the defense or claim.
(5A Del. C. 1953, § 3-307; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-309. Enforcement of lost, destroyed, or stolen instrument.
(a) A person not in possession of an instrument is entitled to enforce the instrument if (i) the person was in possession of the instrument
and entitled to enforce it when loss of possession occurred, (ii) the loss of possession was not the result of a transfer by the person or
a lawful seizure, and (iii) the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its
whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not
amenable to service of process.
(b) A person seeking enforcement of an instrument under subsection (a) must prove the terms of the instrument and the person’s right
to enforce the instrument. If that proof is made, Section 3-308 applies to the case as if the person seeking enforcement had produced the
instrument. The court may not enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay
the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument.
Adequate protection may be provided by any reasonable means.
(70 Del. Laws, c. 86, § 3.)
§ 3-310. Effect of instrument on obligation for which taken.
(a) Unless otherwise agreed, if a certified check, cashier’s check, or teller’s check is taken for an obligation, the obligation is discharged
to the same extent discharge would result if an amount of money equal to the amount of the instrument were taken in payment of the
obligation. Discharge of the obligation does not affect any liability that the obligor may have as an indorser of the instrument.
(b) Unless otherwise agreed and except as provided in subsection (a), if a note or an uncertified check is taken for an obligation, the
obligation is suspended to the same extent the obligation would be discharged if an amount of money equal to the amount of the instrument
were taken, and the following rules apply:
(1) In the case of an uncertified check, suspension of the obligation continues until dishonor of the check or until it is paid or certified.
Payment or certification of the check results in discharge of the obligation to the extent of the amount of the check.
(2) In the case of a note, suspension of the obligation continues until dishonor of the note or until it is paid. Payment of the note
results in discharge of the obligation to the extent of the payment.
(3) Except as provided in paragraph (4), if the check or note is dishonored and the obligee of the obligation for which the instrument
was taken is the person entitled to enforce the instrument, the obligee may enforce either the instrument or the obligation. In the case
of an instrument of a third person which is negotiated to the obligee by the obligor, discharge of the obligor on the instrument also
discharges the obligation.
(4) If the person entitled to enforce the instrument taken for an obligation is a person other than the obligee, the obligee may not
enforce the obligation to the extent the obligation is suspended. If the obligee is the person entitled to enforce the instrument but no
longer has possession of it because it was lost, stolen, or destroyed, the obligation may not be enforced to the extent of the amount
payable on the instrument, and to that extent the obligee’s rights against the obligor are limited to enforcement of the instrument.
(c) If an instrument other than one described in subsection (a) or (b) is taken for an obligation, the effect is (i) that stated in subsection
(a) if the instrument is one on which a bank is liable as maker or acceptor, or (ii) that stated in subsection (b) in any other case.
(70 Del. Laws, c. 86, § 3.)
§ 3-311. Accord and satisfaction by use of instrument.
(a) If a person against whom a claim is asserted proves that (i) that person in good faith tendered an instrument to the claimant as full
satisfaction of the claim, (ii) the amount of the claim was unliquidated or subject to a bona fide dispute, and (iii) the claimant obtained
payment of the instrument, the following subsections apply.
(b) Unless subsection (c) applies, the claim is discharged if the person against whom the claim is asserted proves that the instrument
or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full
satisfaction of the claim.
(c) Subject to subsection (d), a claim is not discharged under subsection (b) if either of the following applies:
(1) The claimant, if an organization, proves that (i) within a reasonable time before the tender, the claimant sent a conspicuous
statement to the person against whom the claim is asserted that communications concerning disputed debts, including an instrument
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tendered as full satisfaction of a debt, are to be sent to a designated person, office, or place, and (ii) the instrument or accompanying
communication was not received by that designated person, office, or place.
(2) The claimant, whether or not an organization, proves that within 90 days after payment of the instrument, the claimant tendered
repayment of the amount of the instrument to the person against whom the claim is asserted. This paragraph does not apply if the
claimant is an organization that sent a statement complying with paragraph (1)(i).
(d) A claim is discharged if the person against whom the claim is asserted proves that within a reasonable time before collection of
the instrument was initiated, the claimant, or an agent of the claimant having direct responsibility with respect to the disputed obligation,
knew that the instrument was tendered in full satisfaction of the claim.
(70 Del. Laws, c. 86, § 3.)
§ 3-312. Lost, destroyed, or stolen cashier’s check, teller’s check, or certified check.
(a) In this section:
(1) “Check” means a cashier’s check, teller’s check, or certified check.
(2) “Claimant” means a person who claims the right to receive the amount of a cashier’s check, teller’s check, or certified check
that was lost, destroyed, or stolen.
(3) “Declaration of loss” means a written statement, made under penalty of perjury, to the effect that (i) the declarer lost possession
of a check, (ii) the declarer is the drawer or payee of the check, in the case of a certified check, or the remitter or payee of the check,
in the case of a cashier’s check or teller’s check, (iii) the loss of possession was not the result of a transfer by the declarer or a lawful
seizure, and (iv) the declarer cannot reasonably obtain possession of the check because the check was destroyed, its whereabouts cannot
be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service
of process.
(4) “Obligated bank” means the issuer of a cashier’s check or teller’s check or the acceptor of a certified check.
(b) A claimant may assert a claim to the amount of a check by a communication to the obligated bank describing the check with
reasonable certainty and requesting payment of the amount of the check, if (i) the claimant is the drawer or payee of a certified check or
the remitter or payee of a cashier’s check or teller’s check, (ii) the communication contains or is accompanied by a declaration of loss of
the claimant with respect to the check, (iii) the communication is received at a time and in a manner affording the bank a reasonable time
to act on it before the check is paid, and (iv) the claimant provides reasonable identification if requested by the obligated bank. Delivery
of a declaration of loss is a warranty of the truth of the statements made in the declaration. If a claim is asserted in compliance with this
subsection, the following rules apply:
(1) The claim becomes enforceable at the later of (i) the time the claim is asserted, or (ii) the 90th day following the date of the check,
in the case of a cashier’s check or teller’s check, or the 90th day following the date of the acceptance, in the case of a certified check.
(2) Until the claim becomes enforceable, it has no legal effect and the obligated bank may pay the check or, in the case of a teller’s
check, may permit the drawee to pay the check. Payment to a person entitled to enforce the check discharges all liability of the obligated
bank with respect to the check.
(3) If the claim becomes enforceable before the check is presented for payment, the obligated bank is not obliged to pay the check.
(4) When the claim becomes enforceable, the obligated bank becomes obliged to pay the amount of the check to the claimant if
payment of the check has not been made to a person entitled to enforce the check. Subject to Section 4-302(a)(1), payment to the
claimant discharges all liability of the obligated bank with respect to the check.
(c) If the obligated bank pays the amount of a check to a claimant under subsection (b)(4) and the check is presented for payment by a
person having rights of a holder in due course, the claimant is obliged to (i) refund the payment to the obligated bank if the check is paid,
or (ii) pay the amount of the check to the person having rights of a holder in due course if the check is dishonored.
(d) If a claimant has the right to assert a claim under subsection (b) and is also a person entitled to enforce a cashier’s check, teller’s
check, or certified check which is lost, destroyed, or stolen, the claimant may assert rights with respect to the check either under this
section or Section 3-309.
(70 Del. Laws, c. 86, § 3.)
Part 4
Liability of Parties
§ 3-401. Signature.
(a) A person is not liable on an instrument unless (i) the person signed the instrument, or (ii) the person is represented by an agent or
representative who signed the instrument and the signature is binding on the represented person under Section 3-402.
(b) A signature may be made (i) manually or by means of a device or machine, and (ii) by the use of any name, including a trade or
assumed name, or by a word, mark, or symbol executed or adopted by a person with present intention to authenticate a writing.
(5A Del. C. 1953, § 3-401; 55 Del. Laws, c. 349; 59 Del. Laws, c. 432, § 1; 70 Del. Laws, c. 86, § 3.)
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§ 3-402. Signature by representative.
(a) If a person acting, or purporting to act, as a representative signs an instrument by signing either the name of the represented person
or the name of the signer, the represented person is bound by the signature to the same extent the represented person would be bound if
the signature were on a simple contract. If the represented person is bound, the signature of the representative is the “authorized signature
of the represented person” and the represented person is liable on the instrument, whether or not identified in the instrument.
(b) If a representative signs the name of the representative to an instrument and the signature is an authorized signature of the represented
person, the following rules apply:
(1) If the form of the signature shows unambiguously that the signature is made on behalf of the represented person who is identified
in the instrument, the representative is not liable on the instrument.
(2) Subject to subsection (c), if (i) the form of the signature does not show unambiguously that the signature is made in a representative
capacity or (ii) the represented person is not identified in the instrument, the representative is liable on the instrument to a holder in due
course that took the instrument without notice that the representative was not intended to be liable on the instrument. With respect to
any other person, the representative is liable on the instrument unless the representative proves that the original parties did not intend
the representative to be liable on the instrument.
(c) If a representative signs the name of the representative as drawer of a check without indication of the representative status and the
check is payable from an account of the represented person who is identified on the check, the signer is not liable on the check if the
signature is an authorized signature of the represented person.
(5A Del. C. 1953, § 3-403; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-403. Unauthorized signature.
(a) Unless otherwise provided in this Article or Article 4, an unauthorized signature is ineffective except as the signature of the
unauthorized signer in favor of a person who in good faith pays the instrument or takes it for value. An unauthorized signature may be
ratified for all purposes of this Article.
(b) If the signature of more than one person is required to constitute the authorized signature of an organization, the signature of the
organization is unauthorized if one of the required signatures is lacking.
(c) The civil or criminal liability of a person who makes an unauthorized signature is not affected by any provision of this Article which
makes the unauthorized signature effective for the purposes of this Article.
(5A Del. C. 1953, § 3-404; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-404. Impostors; fictitious payees.
(a) If an impostor, by use of the mails or otherwise, induces the issuer of an instrument to issue the instrument to the impostor, or to a
person acting in concert with the impostor, by impersonating the payee of the instrument or a person authorized to act for the payee, an
indorsement of the instrument by any person in the name of the payee is effective as the indorsement of the payee in favor of a person
who, in good faith, pays the instrument or takes it for value or for collection.
(b) If (i) a person whose intent determines to whom an instrument is payable (Section 3-110(a) or (b)) does not intend the person
identified as payee to have any interest in the instrument, or (ii) the person identified as payee of an instrument is a fictitious person, the
following rules apply until the instrument is negotiated by special indorsement:
(1) Any person in possession of the instrument is its holder.
(2) An indorsement by any person in the name of the payee stated in the instrument is effective as the indorsement of the payee in
favor of a person who, in good faith, pays the instrument or takes it for value or for collection.
(c) Under subsection (a) or (b), an indorsement is made in the name of a payee if (i) it is made in a name substantially similar to that of
the payee or (ii) the instrument, whether or not indorsed, is deposited in a depositary bank to an account in a name substantially similar
to that of the payee.
(d) With respect to an instrument to which subsection (a) or (b) applies, if a person paying the instrument or taking it for value or for
collection fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss resulting from
payment of the instrument, the person bearing the loss may recover from the person failing to exercise ordinary care to the extent the
failure to exercise ordinary care contributed to the loss.
(5A Del. C. 1953, § 3-405; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-405. Employer’s responsibility for fraudulent indorsement by employee.
(a) In this section:
(1) “Employee” includes an independent contractor and employee of an independent contractor retained by the employer.
(2) “Fraudulent indorsement” means (i) in the case of an instrument payable to the employer, a forged indorsement purporting to
be that of the employer, or (ii) in the case of an instrument with respect to which the employer is the issuer, a forged indorsement
purporting to be that of the person identified as payee.
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(3) “Responsibility” with respect to instruments means authority (i) to sign or indorse instruments on behalf of the employer, (ii)
to process instruments received by the employer for bookkeeping purposes, for deposit to an account, or for other disposition, (iii) to
prepare or process instruments for issue in the name of the employer, (iv) to supply information determining the names or addresses
of payees of instruments to be issued in the name of the employer, (v) to control the disposition of instruments to be issued in the
name of the employer, or (vi) to act otherwise with respect to instruments in a responsible capacity. “Responsibility” does not include
authority that merely allows an employee to have access to instruments or blank or incomplete instrument forms that are being stored
or transported or are part of incoming or outgoing mail, or similar access.
(b) For the purpose of determining the rights and liabilities of a person who, in good faith, pays an instrument or takes it for value
or for collection, if an employer entrusted an employee with responsibility with respect to the instrument and the employee or a person
acting in concert with the employee makes a fraudulent indorsement of the instrument, the indorsement is effective as the indorsement
of the person to whom the instrument is payable if it is made in the name of that person. If the person paying the instrument or taking
it for value or for collection fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes
to loss resulting from the fraud, the person bearing the loss may recover from the person failing to exercise ordinary care to the extent
the failure to exercise ordinary care contributed to the loss.
(c) Under subsection (b), an indorsement is made in the name of the person to whom an instrument is payable if (i) it is made in a name
substantially similar to the name of that person or (ii) the instrument, whether or not indorsed, is deposited in a depositary bank to an
account in a name substantially similar to the name of that person.
(70 Del. Laws, c. 86, § 3.)
§ 3-406. Negligence contributing to forged signature or alteration of instrument.
(a) A person whose failure to exercise ordinary care substantially contributes to an alteration of an instrument or to the making of a
forged signature on an instrument is precluded from asserting the alteration or the forgery against a person who, in good faith, pays the
instrument or takes it for value or for collection.
(b) Under subsection (a), if the person asserting the preclusion fails to exercise ordinary care in paying or taking the instrument and
that failure substantially contributes to loss, the loss is allocated between the person precluded and the person asserting the preclusion
according to the extent to which the failure of each to exercise ordinary care contributed to the loss.
(c) Under subsection (a), the burden of proving failure to exercise ordinary care is on the person asserting the preclusion. Under
subsection (b), the burden of proving failure to exercise ordinary care is on the person precluded.
(5A Del. C. 1953, § 3-406; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-407. Alteration.
(a) “Alteration” means (i) an unauthorized change in an instrument that purports to modify in any respect the obligation of a party, or
(ii) an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party.
(b) Except as provided in subsection (c), an alteration fraudulently made discharges a party whose obligation is affected by the alteration
unless that party assents or is precluded from asserting the alteration. No other alteration discharges a party, and the instrument may be
enforced according to its original terms.
(c) A payor bank or drawee paying a fraudulently altered instrument or a person taking it for value, in good faith and without notice
of the alteration, may enforce rights with respect to the instrument (i) according to its original terms, or (ii) in the case of an incomplete
instrument altered by unauthorized completion, according to its terms as completed.
(5A Del. C. 1953, § 3-407; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-408. Drawee not liable on unaccepted draft.
A check or other draft does not of itself operate as an assignment of funds in the hands of the drawee available for its payment, and
the drawee is not liable on the instrument until the drawee accepts it.
(5A Del. C. 1953, § 3-408; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-409. Acceptance of draft; certified check.
(a) “Acceptance” means the drawee’s signed agreement to pay a draft as presented. It must be written on the draft and may consist of
the drawee’s signature alone. Acceptance may be made at any time and becomes effective when notification pursuant to instructions is
given or the accepted draft is delivered for the purpose of giving rights on the acceptance to any person.
(b) A draft may be accepted although it has not been signed by the drawer, is otherwise incomplete, is overdue, or has been dishonored.
(c) If a draft is payable at a fixed period after sight and the acceptor fails to date the acceptance, the holder may complete the acceptance
by supplying a date in good faith.
(d) “Certified check” means a check accepted by the bank on which it is drawn. Acceptance may be made as stated in subsection (a)
or by a writing on the check which indicates that the check is certified. The drawee of a check has no obligation to certify the check,
and refusal to certify is not dishonor of the check.
(5A Del. C. 1953, § 3-410; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
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§ 3-410. Acceptance varying draft.
(a) If the terms of a drawee’s acceptance vary from the terms of the draft as presented, the holder may refuse the acceptance and treat
the draft as dishonored. In that case, the drawee may cancel the acceptance.
(b) The terms of a draft are not varied by an acceptance to pay at a particular bank or place in the United States, unless the acceptance
states that the draft is to be paid only at that bank or place.
(c) If the holder assents to an acceptance varying the terms of a draft, the obligation of each drawer and indorser that does not expressly
assent to the acceptance is discharged.
(5A Del. C. 1953, § 3-412; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-411. Refusal to pay cashier’s checks, teller’s checks, and certified checks.
(a) In this section, “obligated bank” means the acceptor of a certified check or the issuer of a cashier’s check or teller’s check bought
from the issuer.
(b) If the obligated bank wrongfully (i) refuses to pay a cashier’s check or certified check, (ii) stops payment of a teller’s check, or (iii)
refuses to pay a dishonored teller’s check, the person asserting the right to enforce the check is entitled to compensation for expenses and
loss of interest resulting from the nonpayment and may recover consequential damages if the obligated bank refuses to pay after receiving
notice of particular circumstances giving rise to the damages.
(c) Expenses or consequential damages under subsection (b) are not recoverable if the refusal of the obligated bank to pay occurs
because (i) the bank suspends payments, (ii) the obligated bank asserts a claim or defense of the bank that it has reasonable grounds to
believe is available against the person entitled to enforce the instrument, (iii) the obligated bank has a reasonable doubt whether the person
demanding payment is the person entitled to enforce the instrument, or (iv) payment is prohibited by law.
(5A Del. C. 1953, § 3-411; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-412. Obligation of issuer of note or cashier’s check.
The issuer of a note or cashier’s check or other draft drawn on the drawer is obliged to pay the instrument (i) according to its terms
at the time it was issued or, if not issued, at the time it first came into possession of a holder, or (ii) if the issuer signed an incomplete
instrument, according to its terms when completed, to the extent stated in Sections 3-115 and 3-407. The obligation is owed to a person
entitled to enforce the instrument or to an indorser who paid the instrument under Section 3-415.
(70 Del. Laws, c. 86, § 3.)
§ 3-413. Obligation of acceptor.
(a) The acceptor of a draft is obliged to pay the draft (i) according to its terms at the time it was accepted, even though the acceptance
states that the draft is payable “as originally drawn” or equivalent terms, (ii) if the acceptance varies the terms of the draft, according to the
terms of the draft as varied, or (iii) if the acceptance is of a draft that is an incomplete instrument, according to its terms when completed,
to the extent stated in Sections 3-115 and 3-407. The obligation is owed to a person entitled to enforce the draft or to the drawer or an
indorser who paid the draft under Section 3-414 or 3-415.
(b) If the certification of a check or other acceptance of a draft states the amount certified or accepted, the obligation of the acceptor
is that amount. If (i) the certification or acceptance does not state an amount, (ii) the amount of the instrument is subsequently raised,
and (iii) the instrument is then negotiated to a holder in due course, the obligation of the acceptor is the amount of the instrument at the
time it was taken by the holder in due course.
(5A Del. C. 1953, § 3-413; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-414. Obligation of drawer.
(a) This section does not apply to cashier’s checks or other drafts drawn on the drawer.
(b) If an unaccepted draft is dishonored, the drawer is obliged to pay the draft (i) according to its terms at the time it was issued or,
if not issued, at the time it first came into possession of a holder, or (ii) if the drawer signed an incomplete instrument, according to its
terms when completed, to the extent stated in Sections 3-115 and 3-407. The obligation is owed to a person entitled to enforce the draft
or to an indorser who paid the draft under Section 3-415.
(c) If a draft is accepted by a bank, the drawer is discharged, regardless of when or by whom acceptance was obtained.
(d) If a draft is accepted and the acceptor is not a bank, the obligation of the drawer to pay the draft if the draft is dishonored by the
acceptor is the same as the obligation of an indorser under Section 3-415(a) and (c).
(e) If a draft states that it is drawn “without recourse” or otherwise disclaims liability of the drawer to pay the draft, the drawer is not
liable to pay the draft if the draft is not a check. A disclaimer of the liability stated in subsection (b) is not effective if the draft is a check.
(f) If (i) a check is not presented for payment or given to a depositary bank for collection within 30 days after its date, (ii) the drawee
suspends payments after expiration of the 30-day period without paying the check, and (iii) because of the suspension of payments, the
drawer is deprived of funds maintained with the drawee to cover payment of the check, the drawer to the extent deprived of funds may
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discharge its obligation to pay the check by assigning to the person entitled to enforce the check the rights of the drawer against the
drawee with respect to the funds.
(70 Del. Laws, c. 86, § 3.)
§ 3-415. Obligation of indorser.
(a) Subject to subsections (b), (c), (d) and (e) and to Section 3-419(d), if an instrument is dishonored, an indorser is obliged to pay the
amount due on the instrument (i) according to the terms of the instrument at the time it was indorsed, or (ii) if the indorser indorsed an
incomplete instrument, according to its terms when completed, to the extent stated in Sections 3-115 and 3-407. The obligation of the
indorser is owed to a person entitled to enforce the instrument or to a subsequent indorser who paid the instrument under this section.
(b) If an indorsement states that it is made “without recourse” or otherwise disclaims liability of the indorser, the indorser is not liable
under subsection (a) to pay the instrument.
(c) If notice of dishonor of an instrument is required by Section 3-503 and notice of dishonor complying with that section is not given
to an indorser, the liability of the indorser under subsection (a) is discharged.
(d) If a draft is accepted by a bank after an indorsement is made, the liability of the indorser under subsection (a) is discharged.
(e) If an indorser of a check is liable under subsection (a) and the check is not presented for payment, or given to a depositary bank for
collection, within 30 days after the day the indorsement was made, the liability of the indorser under subsection (a) is discharged.
(5A Del. C. 1953, § 3-414; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-416. Transfer warranties.
(a) A person who transfers an instrument for consideration warrants to the transferee and, if the transfer is by indorsement, to any
subsequent transferee that:
(1) The warrantor is a person entitled to enforce the instrument;
(2) All signatures on the instrument are authentic and authorized;
(3) The instrument has not been altered;
(4) The instrument is not subject to a defense or claim in recoupment of any party which can be asserted against the warrantor; and
(5) The warrantor has no knowledge of any insolvency proceeding commenced with respect to the maker or acceptor or, in the case
of an unaccepted draft, the drawer.
(b) A person to whom the warranties under subsection (a) are made and who took the instrument in good faith may recover from the
warrantor as damages for breach of warranty an amount equal to the loss suffered as a result of the breach, but not more than the amount
of the instrument plus expenses and loss of interest incurred as a result of the breach.
(c) The warranties stated in subsection (a) cannot be disclaimed with respect to checks. Unless notice of a claim for breach of warranty
is given to the warrantor within 30 days after the claimant has reason to know of the breach and the identity of the warrantor, the liability
of the warrantor under subsection (b) is discharged to the extent of any loss caused by the delay in giving notice of the claim.
(d) A [cause of action] for breach of warranty under this section accrues when the claimant has reason to know of the breach.
(70 Del. Laws, c. 86, § 3.)
§ 3-417. Presentment warranties.
(a) If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, (i) the person
obtaining payment or acceptance, at the time of presentment, and (ii) a previous transferor of the draft, at the time of transfer, warrant to
the drawee making payment or accepting the draft in good faith that:
(1) The warrantor is, or was, at the time the warrantor transferred the draft, a person entitled to enforce the draft or authorized to
obtain payment or acceptance of the draft on behalf of a person entitled to enforce the draft;
(2) The draft has not been altered; and
(3) The warrantor has no knowledge that the signature of the drawer of the draft is unauthorized.
(b) A drawee making payment may recover from any warrantor damages for breach of warranty equal to the amount paid by the drawee
less the amount the drawee received or is entitled to receive from the drawer because of the payment. In addition, the drawee is entitled to
compensation for expenses and loss of interest resulting from the breach. The right of the drawee to recover damages under this subsection
is not affected by any failure of the drawee to exercise ordinary care in making payment. If the drawee accepts the draft, breach of warranty
is a defense to the obligation of the acceptor. If the acceptor makes payment with respect to the draft, the acceptor is entitled to recover
from any warrantor for breach of warranty the amounts stated in this subsection.
(c) If a drawee asserts a claim for breach of warranty under subsection (a) based on an unauthorized indorsement of the draft or an
alteration of the draft, the warrantor may defend by proving that the indorsement is effective under Section 3-404 or 3-405 or the drawer
is precluded under Section 3-406 or 4-406 from asserting against the drawee the unauthorized indorsement or alteration.
(d) If (i) a dishonored draft is presented for payment to the drawer or an indorser or (ii) any other instrument is presented for payment
to a party obliged to pay the instrument, and (iii) payment is received, the following rules apply:
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(1) The person obtaining payment and a prior transferor of the instrument warrant to the person making payment in good faith that
the warrantor is, or was, at the time the warrantor transferred the instrument, a person entitled to enforce the instrument or authorized
to obtain payment on behalf of a person entitled to enforce the instrument.
(2) The person making payment may recover from any warrantor for breach of warranty an amount equal to the amount paid plus
expenses and loss of interest resulting from the breach.
(e) The warranties stated in subsections (a) and (d) cannot be disclaimed with respect to checks. Unless notice of a claim for breach of
warranty is given to the warrantor within 30 days after the claimant has reason to know of the breach and the identity of the warrantor, the
liability of the warrantor under subsection (b) or (d) is discharged to the extent of any loss caused by the delay in giving notice of the claim.
(f) A [cause of action] for breach of warranty under this section accrues when the claimant has reason to know of the breach.
(5A Del. C. 1953, § 3-417; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-418. Payment or acceptance by mistake.
(a) Except as provided in subsection (c), if the drawee of a draft pays or accepts the draft and the drawee acted on the mistaken belief
that (i) payment of the draft had not been stopped pursuant to Section 4-403 or (ii) the signature of the drawer of the draft was authorized,
the drawee may recover the amount of the draft from the person to whom or for whose benefit payment was made or, in the case of
acceptance, may revoke the acceptance. Rights of the drawee under this subsection are not affected by failure of the drawee to exercise
ordinary care in paying or accepting the draft.
(b) Except as provided in subsection (c), if an instrument has been paid or accepted by mistake and the case is not covered by subsection
(a), the person paying or accepting may, to the extent permitted by the law governing mistake and restitution, (i) recover the payment
from the person to whom or for whose benefit payment was made or (ii) in the case of acceptance, may revoke the acceptance.
(c) The remedies provided by subsection (a) or (b) may not be asserted against a person who took the instrument in good faith and for
value or who in good faith changed position in reliance on the payment or acceptance. This subsection does not limit remedies provided
by Section 3-417 or 4-407.
(d) Notwithstanding Section 4-215, if an instrument is paid or accepted by mistake and the payor or acceptor recovers payment or
revokes acceptance under subsection (a) or (b), the instrument is deemed not to have been paid or accepted and is treated as dishonored,
and the person from whom payment is recovered has rights as a person entitled to enforce the dishonored instrument.
(70 Del. Laws, c. 86, § 3.)
§ 3-419. Instruments signed for accommodation.
(a) If an instrument is issued for value given for the benefit of a party to the instrument (“accommodated party”) and another party
to the instrument (“accommodation party”) signs the instrument for the purpose of incurring liability on the instrument without being a
direct beneficiary of the value given for the instrument, the instrument is signed by the accommodation party “for accommodation.
(b) An accommodation party may sign the instrument as maker, drawer, acceptor, or indorser and, subject to subsection (d), is obliged
to pay the instrument in the capacity in which the accommodation party signs. The obligation of an accommodation party may be enforced
notwithstanding any statute of frauds and whether or not the accommodation party receives consideration for the accommodation.
(c) A person signing an instrument is presumed to be an accommodation party and there is notice that the instrument is signed for
accommodation if the signature is an anomalous indorsement or is accompanied by words indicating that the signer is acting as surety
or guarantor with respect to the obligation of another party to the instrument. Except as provided in Section 3-605, the obligation of
an accommodation party to pay the instrument is not affected by the fact that the person enforcing the obligation had notice when the
instrument was taken by that person that the accommodation party signed the instrument for accommodation.
(d) If the signature of a party to an instrument is accompanied by words indicating unambiguously that the party is guaranteeing
collection rather than payment of the obligation of another party to the instrument, the signer is obliged to pay the amount due on the
instrument to a person entitled to enforce the instrument only if (i) execution of judgment against the other party has been returned
unsatisfied, (ii) the other party is insolvent or in an insolvency proceeding, (iii) the other party cannot be served with process, or (iv) it
is otherwise apparent that payment cannot be obtained from the other party.
(e) An accommodation party who pays the instrument is entitled to reimbursement from the accommodated party and is entitled to
enforce the instrument against the accommodated party. An accommodated party who pays the instrument has no right of recourse against,
and is not entitled to contribution from, an accommodation party.
(5A Del. C. 1953, § 3-415; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-420. Conversion of instrument.
(a) The law applicable to conversion of personal property applies to instruments. An instrument is also converted if it is taken by
transfer, other than a negotiation, from a person not entitled to enforce the instrument or a bank makes or obtains payment with respect
to the instrument for a person not entitled to enforce the instrument or receive payment. An action for conversion of an instrument may
not be brought by (i) the issuer or acceptor of the instrument or (ii) a payee or indorsee who did not receive delivery of the instrument
either directly or through delivery to an agent or a co-payee.
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(b) In an action under subsection (a), the measure of liability is presumed to be the amount payable on the instrument, but recovery
may not exceed the amount of the plaintiff’s interest in the instrument.
(c) A representative, other than a depositary bank, who has in good faith dealt with an instrument or its proceeds on behalf of one
who was not the person entitled to enforce the instrument is not liable in conversion to that person beyond the amount of any proceeds
that it has not paid out.
(5A Del. C. 1953, § 3-419; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
Part 5
Dishonor
§ 3-501. Presentment.
(a) “Presentment” means a demand made by or on behalf of a person entitled to enforce an instrument (i) to pay the instrument made
to the drawee or a party obliged to pay the instrument or, in the case of a note or accepted draft payable at a bank, to the bank, or (ii)
to accept a draft made to the drawee.
(b) The following rules are subject to Article 4, agreement of the parties, and clearing-house rules and the like:
(1) Presentment may be made at the place of payment of the instrument and must be made at the place of payment if the instrument
is payable at a bank in the United States; may be made by any commercially reasonable means, including an oral, written, or electronic
communication; is effective when the demand for payment or acceptance is received by the person to whom presentment is made; and
is effective if made to any one of two or more makers, acceptors, drawees, or other payors.
(2) Upon demand of the person to whom presentment is made, the person making presentment must (i) exhibit the instrument, (ii)
give reasonable identification and, if presentment is made on behalf of another person, reasonable evidence of authority to do so, and
(iii) sign a receipt on the instrument for any payment made or surrender the instrument if full payment is made.
(3) Without dishonoring the instrument, the party to whom presentment is made may (i) return the instrument for lack of a necessary
indorsement, or (ii) refuse payment or acceptance for failure of the presentment to comply with the terms of the instrument, an agreement
of the parties, or other applicable law or rule.
(4) The party to whom presentment is made may treat presentment as occurring on the next business day after the day of presentment
if the party to whom presentment is made has established a cut-off hour not earlier than 2 p.m. for the receipt and processing of
instruments presented for payment or acceptance and presentment is made after the cut-off hour.
(5A Del. C. 1953, § 3-501; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-502. Dishonor.
(a) Dishonor of a note is governed by the following rules:
(1) If the note is payable on demand, the note is dishonored if presentment is duly made to the maker and the note is not paid on
the day of presentment.
(2) If the note is not payable on demand and is payable at or through a bank or the terms of the note require presentment, the note is
dishonored if presentment is duly made and the note is not paid on the day it becomes payable or the day of presentment, whichever
is later.
(3) If the note is not payable on demand and paragraph (2) does not apply, the note is dishonored if it is not paid on the day it
becomes payable.
(b) Dishonor of an unaccepted draft other than a documentary draft is governed by the following rules:
(1) If a check is duly presented for payment to the payor bank otherwise than for immediate payment over the counter, the check is
dishonored if the payor bank makes timely return of the check or sends timely notice of dishonor or nonpayment under Section 4-301
or 4-302, or becomes accountable for the amount of the check under Section 4-302.
(2) If a draft is payable on demand and paragraph (1) does not apply, the draft is dishonored if presentment for payment is duly made
to the drawee and the draft is not paid on the day of presentment.
(3) If a draft is payable on a date stated in the draft, the draft is dishonored if (i) presentment for payment is duly made to the drawee
and payment is not made on the day the draft becomes payable or the day of presentment, whichever is later, or (ii) presentment for
acceptance is duly made before the day the draft becomes payable and the draft is not accepted on the day of presentment.
(4) If a draft is payable on elapse of a period of time after sight or acceptance, the draft is dishonored if presentment for acceptance
is duly made and the draft is not accepted on the day of presentment.
(c) Dishonor of an unaccepted documentary draft occurs according to the rules stated in subsection (b)(2), (3), and (4), except that
payment or acceptance may be delayed without dishonor until no later than the close of the third business day of the drawee following
the day on which payment or acceptance is required by those paragraphs.
(d) Dishonor of an accepted draft is governed by the following rules:
(1) If the draft is payable on demand, the draft is dishonored if presentment for payment is duly made to the acceptor and the draft
is not paid on the day of presentment.
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(2) If the draft is not payable on demand, the draft is dishonored if presentment for payment is duly made to the acceptor and payment
is not made on the day it becomes payable or the day of presentment, whichever is later.
(e) In any case in which presentment is otherwise required for dishonor under this section and presentment is excused under Section
3-504, dishonor occurs without presentment if the instrument is not duly accepted or paid.
(f) If a draft is dishonored because timely acceptance of the draft was not made and the person entitled to demand acceptance consents
to a late acceptance, from the time of acceptance the draft is treated as never having been dishonored.
(5A Del. C. 1953, § 3-507; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-503. Notice of dishonor.
(a) The obligation of an indorser stated in Section 3-415(a) and the obligation of a drawer stated in Section 3-414(d) may not be enforced
unless (i) the indorser or drawer is given notice of dishonor of the instrument complying with this section or (ii) notice of dishonor is
excused under Section 3-504(b).
(b) Notice of dishonor may be given by any person; may be given by any commercially reasonable means, including an oral, written, or
electronic communication; and is sufficient if it reasonably identifies the instrument and indicates that the instrument has been dishonored
or has not been paid or accepted. Return of an instrument given to a bank for collection is sufficient notice of dishonor.
(c) Subject to Section 3-504(c), with respect to an instrument taken for collection by a collecting bank, notice of dishonor must be given
(i) by the bank before midnight of the next banking day following the banking day on which the bank receives notice of dishonor of the
instrument, or (ii) by any other person within 30 days following the day on which the person receives notice of dishonor. With respect to
any other instrument, notice of dishonor must be given within 30 days following the day on which dishonor occurs.
(5A Del. C. 1953, § 3-508; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-504. Excused presentment and notice of dishonor.
(a) Presentment for payment or acceptance of an instrument is excused if (i) the person entitled to present the instrument cannot with
reasonable diligence make presentment, (ii) the maker or acceptor has repudiated an obligation to pay the instrument or is dead or in
insolvency proceedings, (iii) by the terms of the instrument presentment is not necessary to enforce the obligation of indorsers or the
drawer, (iv) the drawer or indorser whose obligation is being enforced has waived presentment or otherwise has no reason to expect or
right to require that the instrument be paid or accepted, or (v) the drawer instructed the drawee not to pay or accept the draft or the drawee
was not obligated to the drawer to pay the draft.
(b) Notice of dishonor is excused if (i) by the terms of the instrument notice of dishonor is not necessary to enforce the obligation of
a party to pay the instrument, or (ii) the party whose obligation is being enforced waived notice of dishonor. A waiver of presentment
is also a waiver of notice of dishonor.
(c) Delay in giving notice of dishonor is excused if the delay was caused by circumstances beyond the control of the person giving the
notice and the person giving the notice exercised reasonable diligence after the cause of the delay ceased to operate.
(5A Del. C. 1953, § 3-511; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-505. Evidence of dishonor.
(a) The following are admissible as evidence and create a presumption of dishonor and of any notice of dishonor stated:
(1) A document regular in form as provided in subsection (b) which purports to be a protest;
(2) A purported stamp or writing of the drawee, payor bank, or presenting bank on or accompanying the instrument stating that
acceptance or payment has been refused unless reasons for the refusal are stated and the reasons are not consistent with dishonor;
(3) A book or record of the drawee, payor bank, or collecting bank, kept in the usual course of business which shows dishonor, even
if there is no evidence of who made the entry.
(b) A protest is a certificate of dishonor made by a United States consul or vice consul, or a notary public or other person authorized
to administer oaths by the law of the place where dishonor occurs. It may be made upon information satisfactory to that person. The
protest must identify the instrument and certify either that presentment has been made or, if not made, the reason why it was not made,
and that the instrument has been dishonored by nonacceptance or nonpayment. The protest may also certify that notice of dishonor has
been given to some or all parties.
(5A Del. C. 1953, § 3-510; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§§ 3-506 — 3-511.
Part 6
Discharge
§ 3-601. Discharge and effect of discharge.
(a) The obligation of a party to pay the instrument is discharged as stated in this Article or by an act or agreement with the party which
would discharge an obligation to pay money under a simple contract.
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Title 6 - Commerce and Trade
(b) Discharge of the obligation of a party is not effective against a person acquiring rights of a holder in due course of the instrument
without notice of the discharge.
(5A Del. C. 1953, § 3-601; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-602. Payment.
(a) Subject to subsection (b), an instrument is paid to the extent payment is made (i) by or on behalf of a party obliged to pay the
instrument, and (ii) to a person entitled to enforce the instrument. To the extent of the payment, the obligation of the party obliged to
pay the instrument is discharged even though payment is made with knowledge of a claim to the instrument under Section 3-306 by
another person.
(b) The obligation of a party to pay the instrument is not discharged under subsection (a) if:
(1) A claim to the instrument under Section 3-306 is enforceable against the party receiving payment and (i) payment is made with
knowledge by the payor that payment is prohibited by injunction or similar process of a court of competent jurisdiction, or (ii) in the
case of an instrument other than a cashier’s check, teller’s check, or certified check, the party making payment accepted, from the person
having a claim to the instrument, indemnity against loss resulting from refusal to pay the person entitled to enforce the instrument; or
(2) The person making payment knows that the instrument is a stolen instrument and pays a person it knows is in wrongful possession
of the instrument.
(5A Del. C. 1953, § 3-603; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-603. Tender of payment.
(a) If tender of payment of an obligation to pay an instrument is made to a person entitled to enforce the instrument, the effect of tender
is governed by principles of law applicable to tender of payment under a simple contract.
(b) If tender of payment of an obligation to pay an instrument is made to a person entitled to enforce the instrument and the tender is
refused, there is discharge, to the extent of the amount of the tender, of the obligation of an indorser or accommodation party having a
right of recourse with respect to the obligation to which the tender relates.
(c) If tender of payment of an amount due on an instrument is made to a person entitled to enforce the instrument, the obligation of the
obligor to pay subsequent interest on the amount tendered is discharged. If presentment is required with respect to an instrument and the
obligor is able and ready to pay on the due date at every place of payment stated in the instrument, the obligor is deemed to have made
tender of payment on the due date to the person entitled to enforce the instrument.
(5A Del. C. 1953, § 3-604; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-604. Discharge by cancellation or renunciation.
(a) A person entitled to enforce an instrument, with or without consideration, may discharge the obligation of a party to pay the
instrument (i) by an intentional voluntary act, such as surrender of the instrument to the party, destruction, mutilation, or cancellation of
the instrument, cancellation or striking out of the party’s signature, or the addition of words to the instrument indicating discharge, or (ii)
by agreeing not to sue or otherwise renouncing rights against the party by a signed writing.
(b) Cancellation or striking out of an indorsement pursuant to subsection (a) does not affect the status and rights of a party derived
from the indorsement.
(5A Del. C. 1953, § 3-605; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
§ 3-605. Discharge of indorsers and accommodation parties.
(a) In this section, the term “indorser” includes a drawer having the obligation described in Section 3-414(d).
(b) Discharge, under Section 3-604, of the obligation of a party to pay an instrument does not discharge the obligation of an indorser
or accommodation party having a right of recourse against the discharged party.
(c) If a person entitled to enforce an instrument agrees, with or without consideration, to an extension of the due date of the obligation
of a party to pay the instrument, the extension discharges an indorser or accommodation party having a right of recourse against the party
whose obligation is extended to the extent the indorser or accommodation party proves that the extension caused loss to the indorser or
accommodation party with respect to the right of recourse.
(d) If a person entitled to enforce an instrument agrees, with or without consideration, to a material modification of the obligation
of a party other than an extension of the due date, the modification discharges the obligation of an indorser or accommodation party
having a right of recourse against the person whose obligation is modified to the extent the modification causes loss to the indorser or
accommodation party with respect to the right of recourse. The loss suffered by the indorser or accommodation party as a result of the
modification is equal to the amount of the right of recourse unless the person enforcing the instrument proves that no loss was caused by
the modification or that the loss caused by the modification was an amount less than the amount of the right of recourse.
(e) If the obligation of a party to pay an instrument is secured by an interest in collateral and a person entitled to enforce the instrument
impairs the value of the interest in collateral, the obligation of an indorser or accommodation party having a right of recourse against the
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Title 6 - Commerce and Trade
obligor is discharged to the extent of the impairment. The value of an interest in collateral is impaired to the extent (i) the value of the
interest is reduced to an amount less than the amount of the right of recourse of the party asserting discharge, or (ii) the reduction in value
of the interest causes an increase in the amount by which the amount of the right of recourse exceeds the value of the interest. The burden
of proving impairment is on the party asserting discharge.
(f) If the obligation of a party is secured by an interest in collateral not provided by an accommodation party and a person entitled to
enforce the instrument impairs the value of the interest in collateral, the obligation of any party who is jointly and severally liable with
respect to the secured obligation is discharged to the extent the impairment causes the party asserting discharge to pay more than that party
would have been obliged to pay, taking into account rights of contribution, if impairment had not occurred. If the party asserting discharge
is an accommodation party not entitled to discharge under subsection (e), the party is deemed to have a right to contribution based on
joint and several liability rather than a right to reimbursement. The burden of proving impairment is on the party asserting discharge.
(g) Under subsection (e) or (f), impairing value of an interest in collateral includes (i) failure to obtain or maintain perfection or
recordation of the interest in collateral, (ii) release of collateral without substitution of collateral of equal value, (iii) failure to perform
a duty to preserve the value of collateral owed, under Article 9 or other law, to a debtor or surety or other person secondarily liable, or
(iv) failure to comply with applicable law in disposing of collateral.
(h) An accommodation party is not discharged under subsection (c), (d), or (e) unless the person entitled to enforce the instrument
knows of the accommodation or has notice under Section 3-419(c) that the instrument was signed for accommodation.
(i) A party is not discharged under this section if (i) the party asserting discharge consents to the event or conduct that is the basis of the
discharge, or (ii) the instrument or a separate agreement of the party provides for waiver of discharge under this section either specifically
or by general language indicating that parties waive defenses based on suretyship or impairment of collateral.
(5A Del. C. 1953, § 3-606; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 3.)
Part 7
Advice of International Sight Draft
Part 8
Miscellaneous
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Title 6 - Commerce and Trade
Subtitle I
Uniform Commercial Code
Article 4
Bank Deposits and Collections
Part 1
General Provisions and Definitions
§ 4-101. Short title.
This Article may be cited as Uniform Commercial Code — Bank Deposits and Collections.
(5A Del. C. 1953, § 4-101; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-102. Applicability.
(a) To the extent that items within this Article are also within Articles 3 and 8, they are subject to those Articles. If there is conflict,
this Article governs Article 3, but Article 8 governs this Article.
(b) The liability of a bank for action or non-action with respect to an item handled by it for purposes of presentment, payment, or
collection is governed by the law of the place where the bank is located. In the case of action or non-action by or at a branch or separate
office of a bank, its liability is governed by the law of the place where the branch or separate office is located.
(5A Del. C. 1953, § 4-102; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-103. Variation by agreement; measure of damages; action constituting ordinary care.
(a) The effect of the provisions of this Article may be varied by agreement, but the parties to the agreement cannot disclaim a bank’s
responsibility for its lack of good faith or failure to exercise ordinary care or limit the measure of damages for the lack or failure. However,
the parties may determine by agreement the standards by which the bank’s responsibility is to be measured if those standards are not
manifestly unreasonable.
(b) Federal Reserve regulations and operating circulars, clearing-house rules, and the like have the effect of agreements under subsection
(a), whether or not specifically assented to by all parties interested in items handled.
(c) Action or non-action approved by this Article or pursuant to Federal Reserve regulations or operating circulars is the exercise of
ordinary care and, in the absence of special instructions, action or non-action consistent with clearing-house rules and the like or with a
general banking usage not disapproved by this Article, is prima facie the exercise of ordinary care.
(d) The specification or approval of certain procedures by this Article is not disapproval of other procedures that may be reasonable
under the circumstances.
(e) The measure of damages for failure to exercise ordinary care in handling an item is the amount of the item reduced by an amount
that could not have been realized by the exercise of ordinary care. If there is also bad faith it includes any other damages the party suffered
as a proximate consequence.
(5A Del. C. 1953, § 4-103; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-104. Definitions and index of definitions.
(a) In this Article, unless the context otherwise requires:
(1) “Account” means any deposit or credit account with a bank, including a demand, time, savings, passbook, share draft, or like
account, other than an account evidenced by a certificate of deposit.
(2) “Afternoon” means the period of a day between noon and midnight.
(3) “Banking day” means the part of a day on which a bank is open to the public for carrying on substantially all of its banking
functions.
(4) “Clearing house” means an association of banks or other payors regularly clearing items.
(5) “Customer” means a person having an account with a bank or for whom a bank has agreed to collect items, including a bank
that maintains an account at another bank.
(6) “Documentary draft” means a draft to be presented for acceptance or payment if specified documents, certificated securities
(Section 8-102) or instructions for uncertificated securities (Section 8-102), or other certificates, statements, or the like are to be received
by the drawee or other payor before acceptance or payment of the draft.
(7) “Draft” means a draft as defined in Section 3-104 or an item, other than an instrument, that is an order.
(8) “Drawee” means a person ordered in a draft to make payment.
(9) “Item” means an instrument or a promise or order to pay money handled by a bank for collection or payment. The term does not
include a payment order governed by Article 4A or a credit or debit card slip.
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Title 6 - Commerce and Trade
(10) “Midnight deadline” with respect to a bank is midnight on its next banking day following the banking day on which it receives
the relevant item or notice or from which the time for taking action commences to run, whichever is later.
(11) “Settle” means to pay in cash, by clearing-house settlement, in a charge or credit or by remittance, or otherwise as agreed. A
settlement may be either provisional or final.
(12) “Suspends payments” with respect to a bank means that it has been closed by order of the supervisory authorities, that a public
officer has been appointed to take it over, or that it ceases or refuses to make payments in the ordinary course of business.
(b) Other definitions applying to this Article and the sections in which they appear are:
“Agreement for electronic presentment”. Section 4-110
“Bank”. Section 4-105
“Collecting bank”. Section 4-105
“Depositary bank”. Section 4-105
“Intermediary bank”. Section 4-105
“Payor bank”. Section 4-105
“Presenting bank”. Section 4-105
“Presentment notice”. Section 4-110
(c) “Control” as provided in Section 7-106 and the following definitions in other Articles apply to this Article:
“Acceptance”. Section 3-409
“Alteration”. Section 3-407
“Cashier’s check”. Section 3-104
“Certificate of deposit”. Section 3-104
“Certified check”. Section 3-409
“Check”. Section 3-104
[Repealed.]
“Holder in due course”. Section 3-302
“Instrument”. Section 3-104
“Notice of dishonor”. Section 3-503
“Order”. Section 3-103
“Ordinary care”. Section 3-103
“Person entitled to enforce”. Section 3-301
“Presentment”. Section 3-501
“Promise”. Section 3-103
“Prove”. Section 3-103
“Teller’s check”. Section 3-104
“Unauthorized signature”. Section 3-403
(d) In addition, Article 1 contains general definitions and principles of construction and interpretation applicable throughout this Article.
(5A Del. C. 1953, § 4-104; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4; 71 Del. Laws, c. 75, § 18; 74 Del. Laws, c. 332, §§ 31,
32.)
§ 4-105. “Bank”; “depositary bank”; “payor bank”; “intermediary bank”; “collecting bank”; “presenting
bank”.
In this Article:
(1) “Bank” means a person engaged in the business of banking, including a savings bank, savings and loan association, credit union,
or trust company.
(2) “Depositary bank” means the first bank to take an item even though it is also the payor bank, unless the item is presented for
immediate payment over the counter.
(3) “Payor bank” means a bank that is the drawee of a draft.
(4) “Intermediary bank” means a bank to which an item is transferred in course of collection except the depositary or payor bank.
(5) “Collecting bank” means a bank handling an item for collection except the payor bank.
(6) “Presenting bank” means a bank presenting an item except a payor bank.
(5A Del. C. 1953, § 4-105; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-106. Payable through or payable at bank; collecting bank.
(a) If an item states that it is “payable through” a bank identified in the item, (i) the item designates the bank as a collecting bank and
does not by itself authorize the bank to pay the item, and (ii) the item may be presented for payment only by or through the bank.
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Title 6 - Commerce and Trade
(b) If an item states that it is “payable at” a bank identified in the item, (i) the item designates the bank as a collecting bank and does
not by itself authorize the bank to pay the item, and (ii) the item may be presented for payment only by or through the bank.
(c) If a draft names a nonbank drawee and it is unclear whether a bank named in the draft is a co-drawee or a collecting bank, the
bank is a collecting bank.
(70 Del. Laws, c. 86, § 4.)
§ 4-107. Separate office of bank.
A branch or separate office of a bank is a separate bank for the purpose of computing the time within which and determining the place
at or to which action may be taken or notice or orders must be given under this Article and under Article 3.
(5A Del. C. 1953, § 4-106; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-108. Time of receipt of items.
(a) For the purpose of allowing time to process items, prove balances, and make the necessary entries on its books to determine its
position for the day, a bank may fix an afternoon hour of 2 P.M. or later as a cutoff hour for the handling of money and items and the
making of entries on its books.
(b) An item or deposit of money received on any day after a cutoff hour so fixed or after the close of the banking day may be treated
as being received at the opening of the next banking day.
(5A Del. C. 1953, § 4-107; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-109. Delays.
(a) Unless otherwise instructed, a collecting bank in a good faith effort to secure payment of a specific item drawn on a payor other
than a bank, and with or without the approval of any person involved, may waive, modify, or extend time limits imposed or permitted by
this [Act] for a period not exceeding two additional banking days without discharge of drawers or indorsers or liability to its transferor
or a prior party.
(b) Delay by a collecting bank or payor bank beyond time limits prescribed or permitted by this [Act] or by instructions is excused if
(i) the delay is caused by interruption of communication or computer facilities, suspension of payments by another bank, war, emergency
conditions, failure of equipment, or other circumstances beyond the control of the bank, and (ii) the bank exercises such diligence as
the circumstances require.
(5A Del. C. 1953, § 4-108; 55 Del. Laws, c. 349; 67 Del. Laws, c. 330, § 2; 70 Del. Laws, c. 86, § 4.)
§ 4-110. Electronic presentment.
(a) “Agreement for electronic presentment” means an agreement, clearing-house rule, or Federal Reserve regulation or operating
circular, providing that presentment of an item may be made by transmission of an image of an item or information describing the item
(“presentment notice”) rather than delivery of the item itself. The agreement may provide for procedures governing retention, presentment,
payment, dishonor, and other matters concerning items subject to the agreement.
(b) Presentment of an item pursuant to an agreement for presentment is made when the presentment notice is received.
(c) If presentment is made by presentment notice, a reference to “item” or “check” in this Article means the presentment notice unless
the context otherwise indicates.
(70 Del. Laws, c. 86, § 4.)
§ 4-111. Statute of limitations.
An action to enforce an obligation, duty, or right arising under this Article must be commenced within three years after the [cause
of action] accrues.
(70 Del. Laws, c. 86, § 4.)
Part 2
Collection of Items; Depositary and Collecting Banks
§ 4-201. Status of collecting bank as agent and provisional status of credits; applicability of article; item
indorsed “pay any bank”.
(a) Unless a contrary intent clearly appears and before the time that a settlement given by a collecting bank for an item is or becomes
final, the bank, with respect to the item, is an agent or sub-agent of the owner of the item and any settlement given for the item is
provisional. This provision applies regardless of the form of indorsement or lack of indorsement and even though credit given for the item
is subject to immediate withdrawal as of right or is in fact withdrawn; but the continuance of ownership of an item by its owner and any
rights of the owner to proceeds of the item are subject to rights of a collecting bank, such as those resulting from outstanding advances
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on the item and rights of recoupment or setoff. If an item is handled by banks for purposes of presentment, payment, collection, or return,
the relevant provisions of this Article apply even though action of the parties clearly establishes that a particular bank has purchased the
item and is the owner of it.
(b) After an item has been indorsed with the words “pay any bank” or the like, only a bank may acquire the rights of a holder until
the item has been:
(1) Returned to the customer initiating collection; or
(2) Specially indorsed by a bank to a person who is not a bank.
(5A Del. C. 1953, § 4-201; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-202. Responsibility for collection or return; when action timely.
(a) A collecting bank must exercise ordinary care in:
(1) Presenting an item or sending it for presentment;
(2) Sending notice of dishonor or nonpayment or returning an item other than a documentary draft to the bank’s transferor after
learning that the item has not been paid or accepted, as the case may be; and
(3) Settling for an item when the bank receives final settlement; and
(4) Notifying its transferor of any loss or delay in transit within a reasonable time after discovery thereof.
(b) A collecting bank exercises ordinary care under subsection (a) by taking proper action before its midnight deadline following receipt
of an item, notice, or settlement. Taking proper action within a reasonably longer time may constitute the exercise of ordinary care, but
the bank has the burden of establishing timeliness.
(c) Subject to subsection (a)(1), a bank is not liable for the insolvency, neglect, misconduct, mistake, or default of another bank or
person or for loss or destruction of an item in the possession of others or in transit.
(5A Del. C. 1953, § 4-202; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-203. Effect of instructions.
Subject to Article 3 concerning conversion of instruments (Section 3-420) and restrictive indorsements (Section 3-206), only a collecting
bank’s transferor can give instructions that affect the bank or constitute notice to it, and a collecting bank is not liable to prior parties for
any action taken pursuant to the instructions or in accordance with any agreement with its transferor.
(5A Del. C. 1953, § 4-203; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-204. Methods of sending and presenting; sending directly to payor bank.
(a) A collecting bank shall send items by a reasonably prompt method, taking into consideration relevant instructions, the nature of
the item, the number of those items on hand, the cost of collection involved, and the method generally used by it or others to present
those items.
(b) A collecting bank may send:
(1) An item directly to the payor bank;
(2) An item to a nonbank payor if authorized by its transferor; and
(3) An item other than documentary drafts to a nonbank payor, if authorized by Federal Reserve regulation or operating circular,
clearing-house rule, or the like.
(c) Presentment may be made by a presenting bank at a place where the payor bank or other payor has requested that presentment
be made.
(5A Del. C. 1953, § 4-204; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-205. Depositary bank holder of unindorsed item.
If a customer delivers an item to a depositary bank for collection:
(1) The depositary bank becomes a holder of the item at the time it receives the item for collection if the customer at the time of
delivery was a holder of the item, whether or not the customer indorses the item, and, if the bank satisfies the other requirements of
Section 3-302, it is a holder in due course; and
(2) The depositary bank warrants to collecting banks, the payor bank or other payor, and the drawer that the amount of the item was
paid to the customer or deposited to the customer’s account.
(5A Del. C. 1953, § 4-205; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-206. Transfer between banks.
Any agreed method that identifies the transferor bank is sufficient for the item’s further transfer to another bank.
(5A Del. C. 1953, § 4-206; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
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§ 4-207. Transfer warranties.
(a) A customer or collecting bank that transfers an item and receives a settlement or other consideration warrants to the transferee and
to any subsequent collecting bank that:
(1) The warrantor is a person entitled to enforce the item;
(2) All signatures on the item are authentic and authorized;
(3) The item has not been altered;
(4) The item is not subject to a defense or claim in recoupment (Section 3-305(a)) of any party that can be asserted against the
warrantor; and
(5) The warrantor has no knowledge of any insolvency proceeding commenced with respect to the maker or acceptor or, in the case
of an unaccepted draft, the drawer.
(b) If an item is dishonored, a customer or collecting bank transferring the item and receiving settlement or other consideration is
obliged to pay the amount due on the item (i) according to the terms of the item at the time it was transferred, or (ii) if the transfer was of
an incomplete item, according to its terms when completed as stated in Sections 3-115 and 3-407. The obligation of a transferor is owed
to the transferee and to any subsequent collecting bank that takes the item in good faith. A transferor cannot disclaim its obligation under
this subsection by an indorsement stating that it is made “without recourse” or otherwise disclaiming liability.
(c) A person to whom the warranties under subsection (a) are made and who took the item in good faith may recover from the warrantor
as damages for breach of warranty an amount equal to the loss suffered as a result of the breach, but not more than the amount of the item
plus expenses and loss of interest incurred as a result of the breach.
(d) The warranties stated in subsection (a) cannot be disclaimed with respect to checks. Unless notice of a claim for breach of warranty
is given to the warrantor within 30 days after the claimant has reason to know of the breach and the identity of the warrantor, the warrantor
is discharged to the extent of any loss caused by the delay in giving notice of the claim.
(e) A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach.
(5A Del. C. 1953, § 4-207; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-208. Presentment warranties.
(a) If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, (i) the person
obtaining payment or acceptance, at the time of presentment, and (ii) a previous transferor of the draft, at the time of transfer, warrant
to the drawee that pays or accepts the draft in good faith that:
(1) The warrantor is, or was, at the time the warrantor transferred the draft, a person entitled to enforce the draft or authorized to
obtain payment or acceptance of the draft on behalf of a person entitled to enforce the draft;
(2) The draft has not been altered; and
(3) The warrantor has no knowledge that the signature of the purported drawer of the draft is unauthorized.
(b) A drawee making payment may recover from a warrantor damages for breach of warranty equal to the amount paid by the drawee
less the amount the drawee received or is entitled to receive from the drawer because of the payment. In addition, the drawee is entitled to
compensation for expenses and loss of interest resulting from the breach. The right of the drawee to recover damages under this subsection
is not affected by any failure of the drawee to exercise ordinary care in making payment. If the drawee accepts the draft (i) breach of
warranty is a defense to the obligation of the acceptor, and (ii) if the acceptor makes payment with respect to the draft, the acceptor is
entitled to recover from a warrantor for breach of warranty the amounts stated in this subsection.
(c) If a drawee asserts a claim for breach of warranty under subsection (a) based on an unauthorized indorsement of the draft or an
alteration of the draft, the warrantor may defend by proving that the indorsement is effective under Section 3-404 or 3-405 or the drawer
is precluded under Section 3-406 or 4-406 from asserting against the drawee the unauthorized indorsement or alteration.
(d) If (i) a dishonored draft is presented for payment to the drawer or an indorser or (ii) any other item is presented for payment to a
party obliged to pay the item, and the item is paid, the person obtaining payment and a prior transferor of the item warrant to the person
making payment in good faith that the warrantor is, or was, at the time the warrantor transferred the item, a person entitled to enforce the
item or authorized to obtain payment on behalf of a person entitled to enforce the item. The person making payment may recover from
any warrantor for breach of warranty an amount equal to the amount paid plus expenses and loss of interest resulting from the breach.
(e) The warranties stated in subsections (a) and (d) cannot be disclaimed with respect to checks. Unless notice of a claim for breach of
warranty is given to the warrantor within 30 days after the claimant has reason to know of the breach and the identity of the warrantor,
the warrantor is discharged to the extent of any loss caused by the delay in giving notice of the claim.
(f) A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach.
(70 Del. Laws, c. 86, § 4.)
§ 4-209. Encoding and retention warranties.
(a) A person who encodes information on or with respect to an item after issue warrants to any subsequent collecting bank and to
the payor bank or other payor that the information is correctly encoded. If the customer of a depositary bank encodes, that bank also
makes the warranty.
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(b) A person who undertakes to retain an item pursuant to an agreement for electronic presentment warrants to any subsequent collecting
bank and to the payor bank or other payor that retention and presentment of the item comply with the agreement. If a customer of a
depositary bank undertakes to retain an item, that bank also makes this warranty.
(c) A person to whom warranties are made under this section and who took the item in good faith may recover from the warrantor as
damages for breach of warranty an amount equal to the loss suffered as a result of the breach, plus expenses and loss of interest incurred
as a result of the breach.
(70 Del. Laws, c. 86, § 4.)
§ 4-210. Security interest of collecting bank in items, accompanying documents and proceeds.
(a) A collecting bank has a security interest in an item and any accompanying documents or the proceeds of either:
(1) In case of an item deposited in an account, to the extent to which credit given for the item has been withdrawn or applied;
(2) In case of an item for which it has given credit available for withdrawal as of right, to the extent of the credit given, whether or
not the credit is drawn upon or there is a right of charge-back; or
(3) If it makes an advance on or against the item.
(b) If credit given for several items received at one time or pursuant to a single agreement is withdrawn or applied in part, the security
interest remains upon all the items, any accompanying documents or the proceeds of either. For the purpose of this section, credits first
given are first withdrawn.
(c) Receipt by a collecting bank of a final settlement for an item is a realization on its security interest in the item, accompanying
documents, and proceeds. So long as the bank does not receive final settlement for the item or give up possession of the item or possession
or control of the accompanying documents for purposes other than collection, the security interest continues to that extent and is subject
to Article 9, but:
(1) No security agreement is necessary to make the security interest enforceable (§ 9-203(b)(3)(A));
(2) No filing is required to perfect the security interest; and
(3) The security interest has priority over conflicting perfected security interests in the item, accompanying documents, or proceeds.
(5A Del. C. 1953, § 4-208; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4; 72 Del. Laws, c. 401, § 15; 74 Del. Laws, c. 332, § 33.)
§ 4-211. When bank gives value for purposes of holder in due course.
For purposes of determining its status as a holder in due course, a bank has given value to the extent it has a security interest in an item,
if the bank otherwise complies with the requirements of Section 3-302 on what constitutes a holder in due course.
(5A Del. C. 1953, § 4-209; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-212. Presentment by notice of item not payable by, through, or at bank; liability of drawer or indorser.
(a) Unless otherwise instructed, a collecting bank may present an item not payable by, through, or at a bank by sending to the party to
accept or pay a written notice that the bank holds the item for acceptance or payment. The notice must be sent in time to be received on
or before the day when presentment is due and the bank must meet any requirement of the party to accept or pay under Section 3-501 by
the close of the bank’s next banking day after it knows of the requirement.
(b) If presentment is made by notice and payment, acceptance, or request for compliance with a requirement under Section 3-501 is
not received by the close of business on the day after maturity or, in the case of demand items, by the close of business on the third
banking day after notice was sent, the presenting bank may treat the item as dishonored and charge any drawer or indorser by sending
it notice of the facts.
(5A Del. C. 1953, § 4-210; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-213. Medium and time of settlement by bank.
(a) With respect to settlement by a bank, the medium and time of settlement may be prescribed by Federal Reserve regulations or
circulars, clearing-house rules, and the like, or agreement. In the absence of such prescription:
(1) The medium of settlement is cash or credit to an account in a Federal Reserve bank of or specified by the person to receive
settlement; and
(2) The time of settlement is:
(i) With respect to tender of settlement by cash, a cashier’s check, or teller’s check, when the cash or check is sent or delivered;
(ii) With respect to tender of settlement by credit in an account in a Federal Reserve Bank, when the credit is made;
(iii) With respect to tender of settlement by a credit or debit to an account in a bank, when the credit or debit is made or, in the
case of tender of settlement by authority to charge an account, when the authority is sent or delivered; or
(iv) With respect to tender of settlement by a funds transfer, when payment is made pursuant to Section 4A-406(a) to the person
receiving settlement.
(b) If the tender of settlement is not by a medium authorized by subsection (a) or the time of settlement is not fixed by subsection (a),
no settlement occurs until the tender of settlement is accepted by the person receiving settlement.
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(c) If settlement for an item is made by cashier’s check or teller’s check and the person receiving settlement before its midnight deadline:
(1) Presents or forwards the check for collection, settlement is final when the check is finally paid; or
(2) Fails to present or forward the check for collection, settlement is final at the midnight deadline of the person receiving settlement.
(d) If settlement for an item is made by giving authority to charge the account of the bank giving settlement in the bank receiving
settlement, settlement is final when the charge is made by the bank receiving settlement if there are funds available in the account for
the amount of the item.
(5A Del. C. 1953, § 4-211; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-214. Right of charge-back or refund; liability of collecting bank; return of item.
(a) If a collecting bank has made provisional settlement with its customer for an item and fails by reason of dishonor, suspension of
payments by a bank, or otherwise to receive settlement for the item which is or becomes final, the bank may revoke the settlement given
by it, charge back the amount of any credit given for the item to its customer’s account, or obtain refund from its customer, whether
or not it is able to return the item, if by its midnight deadline or within a longer reasonable time after it learns the facts it returns the
item or sends notification of the facts. If the return or notice is delayed beyond the bank’s midnight deadline or a longer reasonable time
after it learns the facts, the bank may revoke the settlement, charge back the credit, or obtain refund from its customer, but it is liable
for any loss resulting from the delay. These rights to revoke, charge back, and obtain refund terminate if and when a settlement for the
item received by the bank is or becomes final.
(b) A collecting bank returns an item when it is sent or delivered to the bank’s customer or transferor or pursuant to its instructions.
(c) A depositary bank that is also the payor may charge back the amount of an item to its customer’s account or obtain refund in
accordance with the section governing return of an item received by a payor bank for credit on its books (Section 4-301).
(d) The right to charge back is not affected by:
(1) Previous use of a credit given for the item; or
(2) Failure by any bank to exercise ordinary care with respect to the item, but a bank so failing remains liable.
(e) A failure to charge back or claim refund does not affect other rights of the bank against the customer or any other party.
(f) If credit is given in dollars as the equivalent of the value of an item payable in foreign money, the dollar amount of any chargeback or refund must be calculated on the basis of the bank-offered spot rate for the foreign money prevailing on the day when the person
entitled to the charge-back or refund learns that it will not receive payment in ordinary course.
(5A Del. C. 1953, § 4-212; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-215. Final payment of item by payor bank; when provisional debits and credits become final; when
certain credits become available for withdrawal.
(a) An item is finally paid by a payor bank when the bank has first done any of the following:
(1) Paid the item in cash;
(2) Settled for the item without having a right to revoke the settlement under statute, clearing-house rule, or agreement; or
(3) Made a provisional settlement for the item and failed to revoke the settlement in the time and manner permitted by statute,
clearing-house rule, or agreement.
(b) If provisional settlement for an item does not become final, the item is not finally paid.
(c) If provisional settlement for an item between the presenting and payor banks is made through a clearing house or by debits or
credits in an account between them, then to the extent that provisional debits or credits for the item are entered in accounts between
the presenting and payor banks or between the presenting and successive prior collecting banks seriatim, they become final upon final
payment of the items by the payor bank.
(d) If a collecting bank receives a settlement for an item which is or becomes final, the bank is accountable to its customer for the
amount of the item and any provisional credit given for the item in an account with its customer becomes final.
(e) Subject to (i) applicable law stating a time for availability of funds and (ii) any right of the bank to apply the credit to an obligation
of the customer, credit given by a bank for an item in a customer’s account becomes available for withdrawal as of right:
(1) If the bank has received a provisional settlement for the item, when the settlement becomes final and the bank has had a reasonable
time to receive return of the item and the item has not been received within that time;
(2) If the bank is both the depositary bank and the payor bank, and the item is finally paid, at the opening of the bank’s second
banking day following receipt of the item.
(f) Subject to applicable law stating a time for availability of funds and any right of a bank to apply a deposit to an obligation of the
depositor, a deposit of money becomes available for withdrawal as of right at the opening of the bank’s next banking day after receipt
of the deposit.
(5A Del. C. 1953, § 4-213; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
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§ 4-216. Insolvency and preference.
(a) If an item is in or comes into the possession of a payor or collecting bank that suspends payment and the item has not been finally
paid, the item must be returned by the receiver, trustee, or agent in charge of the closed bank to the presenting bank or the closed bank’s
customer.
(b) If a payor bank finally pays an item and suspends payments without making a settlement for the item with its customer or the
presenting bank which settlement is or becomes final, the owner of the item has a preferred claim against the payor bank.
(c) If a payor bank gives or a collecting bank gives or receives a provisional settlement for an item and thereafter suspends payments,
the suspension does not prevent or interfere with the settlement’s becoming final if the finality occurs automatically upon the lapse of
certain time or the happening of certain events.
(d) If a collecting bank receives from subsequent parties settlement for an item, which settlement is or becomes final and the bank
suspends payments without making a settlement for the item with its customer which settlement is or becomes final, the owner of the
item has a preferred claim against the collecting bank.
(5A Del. C. 1953, § 4-214; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
Part 3
Collection of Items: Payor Banks
§ 4-301. Deferred posting; recovery of payment by return of items; time of dishonor; return of items by
payor bank.
(a) If a payor bank settles for a demand item other than a documentary draft presented otherwise than for immediate payment over the
counter before midnight of the banking day of receipt, the payor bank may revoke the settlement and recover the settlement if, before it
has made final payment and before its midnight deadline, it
(1) returns the item; or
(2) sends written notice of dishonor or nonpayment if the item is unavailable for return.
(b) If a demand item is received by a payor bank for credit on its books, it may return the item or send notice of dishonor and may revoke
any credit given or recover the amount thereof withdrawn by its customer, if it acts within the time limit and in the manner specified
in subsection (a).
(c) Unless previous notice of dishonor has been sent, an item is dishonored at the time when for purposes of dishonor it is returned
or notice sent in accordance with this section.
(d) An item is returned:
(1) As to an item presented through a clearing house, when it is delivered to the presenting or last collecting bank or to the clearing
house or is sent or delivered in accordance with clearing-house rules; or
(2) In all other cases, when it is sent or delivered to the bank’s customer or transferor or pursuant to instructions.
(5A Del. C. 1953, § 4-301; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-302. Payor bank’s responsibility for late return of item.
(a) If an item is presented to and received by a payor bank, the bank is accountable for the amount of:
(1) A demand item, other than a documentary draft, whether properly payable or not, if the bank, in any case in which it is not also
the depositary bank, retains the item beyond midnight of the banking day of receipt without settling for it or, whether or not it is also
the depositary bank, does not pay or return the item or send notice of dishonor until after its midnight deadline; or
(2) Any other properly payable item unless, within the time allowed for acceptance or payment of that item, the bank either accepts
or pays the item or returns it and accompanying documents.
(b) The liability of a payor bank to pay an item pursuant to subsection (a) is subject to defenses based on breach of a presentment
warranty (Section 4-208) or proof that the person seeking enforcement of the liability presented or transferred the item for the purpose
of defrauding the payor bank.
(5A Del. C. 1953, § 4-302; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-303. When items subject to notice, stop-payment order, legal process, or setoff; order in which items
may be charged or certified.
(a) Any knowledge, notice, or stop-payment order received by, legal process served upon, or setoff exercised by a payor bank comes
too late to terminate, suspend, or modify the bank’s right or duty to pay an item or to charge its customer’s account for the item if the
knowledge, notice, stop-payment order, or legal process is received or served and a reasonable time for the bank to act thereon expires
or the setoff is exercised after the earliest of the following:
(1) The bank accepts or certifies the item;
(2) The bank pays the item in cash;
(3) The bank settles for the item without having a right to revoke the settlement under statute, clearing-house rule, or agreement;
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(4) The bank becomes accountable for the amount of the item under Section 4-302 dealing with the payor bank’s responsibility for
late return of items; or
(5) With respect to checks, a cutoff hour no earlier than one hour after the opening of the next banking day after the banking day on
which the bank received the check and no later than the close of that next banking day or, if no cutoff hour is fixed, the close of the
next banking day after the banking day on which the bank received the check.
(b) Subject to subsection (a), items may be accepted, paid, certified, or charged to the indicated account of its customer in any order.
(5A Del. C. 1953, § 4-303; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
Part 4
Relationship Between Payor Bank and its Customer
§ 4-401. When bank may charge customer’s account.
(a) A bank may charge against the account of a customer an item that is properly payable from that account even though the charge
creates an overdraft. An item is properly payable if it is authorized by the customer and is in accordance with any agreement between
the customer and bank.
(b) A customer is not liable for the amount of an overdraft if the customer neither signed the item nor benefited from the proceeds
of the item.
(c) A bank may charge against the account of a customer a check that is otherwise properly payable from the account, even though
payment was made before the date of the check, unless the customer has given notice to the bank of the postdating describing the check
with reasonable certainty. The notice is effective for the period stated in Section 4-403(b) for stop-payment orders, and must be received
at such time and in such manner as to afford the bank a reasonable opportunity to act on it before the bank takes any action with respect
to the check described in Section 4-303. If a bank charges against the account of a customer a check before the date stated in the notice
of postdating, the bank is liable for damages for the loss resulting from its act. The loss may include damages for dishonor of subsequent
items under Section 4-402.
(d) A bank that in good faith makes payment to a holder may charge the indicated account of its customer according to:
(1) The original terms of the altered item; or
(2) The terms of the completed item, even though the bank knows the item has been completed unless the bank has notice that the
completion was improper.
(5A Del. C. 1953, § 4-401; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-402. Bank’s liability to customer for wrongful dishonor; time of determining insufficiency of account.
(a) Except as otherwise provided in this Article, a payor bank wrongfully dishonors an item if it dishonors an item that is properly
payable, but a bank may dishonor an item that would create an overdraft unless it has agreed to pay the overdraft.
(b) A payor bank is liable to its customer for damages proximately caused by the wrongful dishonor of an item. Liability is limited to
actual damages proved and may include damages for an arrest or prosecution of the customer or other consequential damages. Whether
any consequential damages are proximately caused by the wrongful dishonor is a question of fact to be determined in each case.
(c) A payor bank’s determination of the customer’s account balance on which a decision to dishonor for insufficiency of available funds
is based may be made at any time between the time the item is received by the payor bank and the time that the payor bank returns the
item or gives notice in lieu of return, and no more than one determination need be made. If, at the election of the payor bank, a subsequent
balance determination is made for the purpose of reevaluating the bank’s decision to dishonor the item, the account balance at that time
is determinative of whether a dishonor for insufficiency of available funds is wrongful.
(5A Del. C. 1953, § 4-402; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-403. Customer’s right to stop payment; burden of proof of loss.
(a) A customer or any person authorized to draw on the account if there is more than one person may stop payment of any item drawn
on the customer’s account or close the account by an order to the bank describing the item or account with reasonable certainty received
at a time and in a manner that affords the bank a reasonable opportunity to act on it before any action by the bank with respect to the
item described in Section 4-303. If the signature of more than one person is required to draw on an account, any of these persons may
stop payment or close the account.
(b) A stop-payment order is effective for six months, but it lapses after 14 calendar days if the original order was oral and was not
confirmed in writing within that period. A stop-payment order may be renewed for additional six-month periods by a writing given to the
bank within a period during which the stop-payment order is effective.
(c) The burden of establishing the fact and amount of loss resulting from the payment of an item contrary to a stop-payment order or
order to close an account is on the customer. The loss from payment of an item contrary to a stop-payment order may include damages
for dishonor of subsequent items under Section 4-402.
(5A Del. C. 1953, § 4-403; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
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§ 4-404. Bank not obliged to pay check more than six months old.
A bank is under no obligation to a customer having a checking account to pay a check, other than a certified check, which is presented
more than six months after its date, but it may charge its customer’s account for a payment made thereafter in good faith.
(5A Del. C. 1953, § 4-404; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-405. Death or incompetence of customer.
(a) A payor or collecting bank’s authority to accept, pay, or collect an item or to account for proceeds of its collection, if otherwise
effective, is not rendered ineffective by incompetence of a customer of either bank existing at the time the item is issued or its collection
is undertaken if the bank does not know of an adjudication of incompetence. Neither death nor incompetence of a customer revokes
the authority to accept, pay, collect, or account until the bank knows of the fact of death or of an adjudication of incompetence and has
reasonable opportunity to act on it.
(b) Even with knowledge, a bank may for 10 days after the date of death pay or certify checks drawn on or before that date unless
ordered to stop payment by a person claiming an interest in the account.
(5A Del. C. 1953, § 4-405; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-406. Customer’s duty to discover and report unauthorized signature or alteration.
(a) A bank that sends or makes available to a customer a statement of account showing payment of items for the account shall either
return or make available to the customer the items paid or provide information in the statement of account sufficient to allow the customer
reasonably to identify the items paid. The statement of account provides sufficient information if the item is described by item number,
amount, and date of payment.
(b) If the items are not returned to the customer, the person retaining the items shall either retain the items or, if the items are destroyed,
maintain the capacity to furnish legible copies of the items until the expiration of seven years after receipt of the items. A customer may
request an item from the bank that paid the item, and that bank must provide in a reasonable time either the item or, if the item has been
destroyed or is not otherwise obtainable, a legible copy of the item.
(c) If a bank sends or makes available a statement of account or items pursuant to subsection (a), the customer must exercise reasonable
promptness in examining the statement or the items to determine whether any payment was not authorized because of an alteration of an
item or because a purported signature by or on behalf of the customer was not authorized. If, based on the statement or items provided, the
customer should reasonably have discovered the unauthorized payment, the customer must promptly notify the bank of the relevant facts.
(d) If the bank proves that the customer failed, with respect to an item, to comply with the duties imposed on the customer by subsection
(c), the customer is precluded from asserting against the bank:
(1) The customer’s unauthorized signature or any alteration on the item, if the bank also proves that it suffered a loss by reason
of the failure; and
(2) The customer’s unauthorized signature or alteration by the same wrongdoer on any other item paid in good faith by the bank
if the payment was made before the bank received notice from the customer of the unauthorized signature or alteration and after the
customer had been afforded a reasonable period of time, not exceeding 30 days, in which to examine the item or statement of account
and notify the bank.
(e) If subsection (d) applies and the customer proves that the bank failed to exercise ordinary care in paying the item and that the failure
substantially contributed to loss, the loss is allocated between the customer precluded and the bank asserting the preclusion according to the
extent to which the failure of the customer to comply with subsection (c) and the failure of the bank to exercise ordinary care contributed
to the loss. If the customer proves that the bank did not pay the item in good faith, the preclusion under subsection (d) does not apply.
(f) Without regard to care or lack of care of either the customer or the bank, a customer who does not within one year after the statement
or items are made available to the customer (subsection (a)) discover and report the customer’s unauthorized signature on or any alteration
on the item is precluded from asserting against the bank the unauthorized signature or alteration. If there is a preclusion under this
subsection, the payor bank may not recover for breach of warranty under Section 4-208 with respect to the unauthorized signature or
alteration to which the preclusion applies.
(5A Del. C. 1953, § 4-406; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-407. Payor bank’s right to subrogation on improper payment.
If a payor bank has paid an item over the order of the drawer or maker to stop payment, or after an account has been closed, or otherwise
under circumstances giving a basis for objection by the drawer or maker, to prevent unjust enrichment and only to the extent necessary
to prevent loss to the bank by reason of its payment of the item, the payor bank is subrogated to the rights
(1) of any holder in due course on the item against the drawer or maker;
(2) of the payee or any other holder of the item against the drawer or maker either on the item or under the transaction out of which
the item arose; and
(3) of the drawer or maker against the payee or any other holder of the item with respect to the transaction out of which the item arose.
(5A Del. C. 1953, § 4-407; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
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Part 5
Collection of Documentary Drafts
§ 4-501. Handling of documentary drafts; duty to send for presentment and to notify customer of dishonor.
A bank that takes a documentary draft for collection shall present or send the draft and accompanying documents for presentment and,
upon learning that the draft has not been paid or accepted in due course, shall seasonably notify its customer of the fact even though it
may have discounted or bought the draft or extended credit available for withdrawal as of right.
(5A Del. C. 1953, § 4-501; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-502. Presentment of “on arrival” drafts.
If a draft or the relevant instructions require presentment “on arrival”, “when goods arrive” or the like, the collecting bank need not
present until in its judgment a reasonable time for arrival of the goods has expired. Refusal to pay or accept because the goods have not
arrived is not dishonor; the bank must notify its transferor of the refusal but need not present the draft again until it is instructed to do
so or learns of the arrival of the goods.
(5A Del. C. 1953, § 4-502; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-503. Responsibility of presenting bank for documents and goods; report of reasons for dishonor; referee
in case of need.
Unless otherwise instructed and except as provided in Article 5, a bank presenting a documentary draft:
(1) Must deliver the documents to the drawee on acceptance of the draft if it is payable more than three days after presentment;
otherwise, only on payment; and
(2) Upon dishonor, either in the case of presentment for acceptance or presentment for payment, may seek and follow instructions
from any referee in case of need designated in the draft or, if the presenting bank does not choose to utilize the referee’s services, it
must use diligence and good faith to ascertain the reason for dishonor, must notify its transferor of the dishonor and of the results of
its effort to ascertain the reasons therefor, and must request instructions.
However the presenting bank is under no obligation with respect to goods represented by the documents except to follow any
reasonable instructions seasonably received; it has a right to reimbursement for any expense incurred in following instructions and to
prepayment of or indemnity for those expenses.
(5A Del. C. 1953, § 4-503; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
§ 4-504. Privilege of presenting bank to deal with goods; security interest for expenses.
(a) A presenting bank that, following the dishonor of a documentary draft, has seasonably requested instructions but does not receive
them within a reasonable time may store, sell, or otherwise deal with the goods in any reasonable manner.
(b) For its reasonable expenses incurred by action under subsection (a), the presenting bank has a lien upon the goods or their proceeds,
which may be foreclosed in the same manner as an unpaid seller’s lien.
(5A Del. C. 1953, § 4-504; 55 Del. Laws, c. 349; 70 Del. Laws, c. 86, § 4.)
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Subtitle I
Uniform Commercial Code
Article 4A
Funds Transfers
Part 1
Subject Matter and Definitions
§ 4A-101. Short title.
This Article may be cited as Uniform Commercial Code — Funds Transfers.
(68 Del. Laws, c. 430, § 1.)
§ 4A-102. Subject matter.
Except as otherwise provided in Section 4A-108, this Article applies to funds transfers defined in Section 4A-104.
(68 Del. Laws, c. 430, § 1.)
§ 4A-103. Payment order — Definitions.
(a) In this Article:
(1) “Payment order” means an instruction of a sender to a receiving bank, transmitted orally, electronically, or in writing, to pay, or
to cause another bank to pay, a fixed or determinable amount of money to a beneficiary if:
(i) the instruction does not state a condition to payment to the beneficiary other than time of payment,
(ii) the receiving bank is to be reimbursed by debiting an account of, or otherwise receiving payment from, the sender, and
(iii) the instruction is transmitted by the sender directly to the receiving bank or to an agent, funds-transfer system, or
communication system for transmittal to the receiving bank.
(2) “Beneficiary” means the person to be paid by the beneficiary’s bank.
(3) “Beneficiary’s bank” means the bank identified in a payment order in which an account of the beneficiary is to be credited
pursuant to the order or which otherwise is to make payment to the beneficiary if the order does not provide for payment to an account.
(4) “Receiving bank” means the bank to which the sender’s instruction is addressed.
(5) “Sender” means the person giving the instruction to the receiving bank.
(b) If an instruction complying with subsection (a)(1) is to make more than one payment to a beneficiary, the instruction is a separate
payment order with respect to each payment.
(c) A payment order is issued when it is sent to the receiving bank.
(68 Del. Laws, c. 430, § 1.)
§ 4A-104. Funds transfer — Definitions.
In this Article:
(a) “Funds transfer” means the series of transactions, beginning with the originator’s payment order, made for the purpose of making
payment to the beneficiary of the order. The term includes any payment order issued by the originator’s bank or an intermediary bank
intended to carry out the originator’s payment order. A funds transfer is completed by acceptance by the beneficiary’s bank of a payment
order for the benefit of the beneficiary of the originator’s payment order.
(b) “Intermediary bank” means a receiving bank other than the originator’s bank or the beneficiary’s bank.
(c) “Originator” means the sender of the first payment order in a funds transfer.
(d) “Originator’s bank” means (i) the receiving bank to which the payment order of the originator is issued if the originator is not
a bank, or (ii) the originator if the originator is a bank.
(68 Del. Laws, c. 430, § 1.)
§ 4A-105. Other definitions.
(a) In this Article:
(1) “Authorized account” means a deposit account of a customer in a bank designated by the customer as a source of payment of
payment orders issued by the customer to the bank. If a customer does not so designate an account, any account of the customer is an
authorized account if payment of a payment order from that account is not inconsistent with a restriction on the use of that account.
(2) “Bank” means a person engaged in the business of banking and includes a savings bank, savings and loan association, credit
union, and trust company. A branch or separate office of a bank is a separate bank for purposes of this Article.
(3) “Customer” means a person, including a bank, having an account with a bank or from whom a bank has agreed to receive payment
orders.
(4) “Funds-transfer business day” of a receiving bank means the part of a day during which the receiving bank is open for the receipt,
processing, and transmittal of payment orders and cancellations and amendments of payment orders.
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Title 6 - Commerce and Trade
(5) “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.
(6) [Reserved.]
(7) “Prove” with respect to a fact means to meet the burden of establishing the fact (Section 1-201(b)(8)).
(b) Other definitions applying to this Article and the sections in which they appear are:
“Acceptance”
Section 4A-209
“Beneficiary”
Section 4A-103
“Beneficiary’s
bank”
Section 4A-103
“Executed”
Section 4A-301
“Execution
date”
Section 4A-301
“Funds
transfer”
Section 4A-104
“Funds-transfer
system
rule”
Section 4A-501
“Intermediary
bank”
Section 4A-104
“Originator”
Section 4A-104
“Originator’s
Section 4A-104
“Payment
bank”
by
Section 4A-405
“Payment
Section 4A-406
“Payment
beneficiary’s
by
by
bank
originator
sender
to
to
to
beneficiary”
beneficiary”
receiving
bank”
Section 4A-403
“Payment
date”
Section 4A-401
“Payment
order”
Section 4A-103
“Receiving
bank”
Section 4A-103
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“Security
procedure”
Section 4A-201
“Sender”
Section 4A-103
(c) The following definitions in Article 4 apply to this Article:
“Clearing
house”
Section 4-104
“Item”
Section 4-104
“Suspends
payments”
Section 4-104
(d) In addition Article 1 contains general definitions and principles of construction and interpretation applicable throughout this Article.
(68 Del. Laws, c. 430, § 1; 74 Del. Laws, c. 332, §§ 34, 35.)
§ 4A-106. Time payment order is received.
(a) 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 1-202. 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.
(b) If this Article refers to an execution date or payment date or states a day on which a receiving bank is required to take action, and
the date or day does not fall on a funds-transfer business day, the next day that is a funds-transfer business day is treated as the date or
day stated, unless the contrary is stated in this Article.
(68 Del. Laws, c. 430, § 1; 74 Del. Laws, c. 332, § 36.)
§ 4A-107. Federal Reserve regulations and operating circulars.
Regulations of the Board of Governors of the Federal Reserve System and operating circulars of the Federal Reserve Banks supersede
any inconsistent provision of this Article to the extent of the inconsistency.
(68 Del. Laws, c. 430, § 1.)
§ 4A-108. Relationship to Electronic Fund Transfer Act.
(a) Except as provided in subsection (b) of this section, this Article does not apply to a funds transfer any part of which is governed by
the Electronic Fund Transfer Act (Title XX, Public Law 95-630, 92 Stat. 3728, 15 U.S.C. § 1693 et seq.).
(b) This Article applies to a funds transfer that is a remittance transfer as defined in the Electronic Fund Transfer Act, 15 U.S.C. §
1693o-1, unless the remittance transfer is an electronic fund transfer as defined in the Electronic Fund Transfer Act, 15 U.S.C. § 1693a.
(c) In a funds transfer to which this Article applies, in the event of an inconsistency between the applicable provisions of this Article
and an applicable provision of the Electronic Fund Transfer Act, the provision of the Electronic Fund Transfer Act governs to the extent
of the inconsistency.
(68 Del. Laws, c. 430, § 1; 80 Del. Laws, c. 385, § 1.)
Part 2
Issue and Acceptance of Payment Order
§ 4A-201. Security procedure.
“Security procedure” means a procedure established by agreement of a customer and a receiving bank for the purpose of (i) verifying
that a payment order or communication amending or cancelling a payment order is that of the customer, or (ii) detecting error in the
transmission or the content of the payment order or communication. A security procedure may require the use of algorithms or other codes,
identifying words or numbers, encryption, callback procedures, or similar security devices. Comparison of a signature on a payment order
or communication with an authorized specimen signature of the customer is not by itself a security procedure.
(68 Del. Laws, c. 430, § 1.)
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§ 4A-202. Authorized and verified payment orders.
(a) A payment order received by the receiving bank is the authorized order of the person identified as sender if that person authorized
the order or is otherwise bound by it under the law of agency.
(b) If a bank and its customer have agreed that the authenticity of payment orders issued to the bank in the name of the customer
as sender will be verified pursuant to a security procedure, a payment order received by the receiving bank is effective as the order of
the customer, whether or not authorized, if (i) the security procedure is a commercially reasonable method of providing security against
unauthorized payment orders, and (ii) the bank proves that it accepted the payment order in good faith and in compliance with the security
procedure and any written agreement or instruction of the customer restricting acceptance of payment orders issued in the name of the
customer. The bank is not required to follow an instruction that violates a written agreement with the customer or notice of which is not
received at a time and in a manner affording the bank a reasonable opportunity to act on it before the payment order is accepted.
(c) Commercial reasonableness of a security procedure is a question of law to be determined by considering the wishes of the customer
expressed to the bank, the circumstances of the customer known to the bank, including the size, type, and frequency of payment orders
normally issued by the customer to the bank, alternative security procedures offered to the customer, and security procedures in general
use by customers and receiving banks similarly situated. A security procedure is deemed to be commercially reasonable if (i) the security
procedure was chosen by the customer after the bank offered, and the customer refused, a security procedure that was commercially
reasonable for that customer, and (ii) the customer expressly agreed in writing to be bound by any payment order, whether or not
authorized, issued in its name and accepted by the bank in compliance with the security procedure chosen by the customer.
(d) The term “sender” in this Article includes the customer in whose name a payment order is issued if the order is the authorized order
of the customer under subsection (a), or it is effective as the order of the customer under subsection (b).
(e) This section applies to amendments and cancellations of payment orders to the same extent it applies to payment orders.
(f) Except as provided in this section and in Section 4A-203(a)(1), rights and obligations arising under this section or Section 4A-203
may not be varied by agreement.
(68 Del. Laws, c. 430, § 1.)
§ 4A-203. Unenforceability of certain verified payment orders.
(a) If an accepted payment order is not, under Section 4A-202(a), an authorized order of a customer identified as sender, but is effective
as an order of the customer pursuant to Section 4A-202(b), the following rules apply:
(1) By express written agreement, the receiving bank may limit the extent to which it is entitled to enforce or retain payment of
the payment order.
(2) The receiving bank is not entitled to enforce or retain payment of the payment order if the customer proves that the order was not
caused, directly or indirectly, by a person (i) entrusted at any time with duties to act for the customer with respect to payment orders or
the security procedure, or (ii) who obtained access to transmitting facilities of the customer or who obtained, from a source controlled by
the customer and without authority of the receiving bank, information facilitating breach of the security procedure, regardless of how the
information was obtained or whether the customer was at fault. Information includes any access device, computer software, or the like.
(b) This section applies to amendments of payment orders to the same extent it applies to payment orders.
(68 Del. Laws, c. 430, § 1.)
§ 4A-204. Refund of payment and duty of customer to report with respect to unauthorized payment order.
(a) If a receiving bank accepts a payment order issued in the name of its customer as sender which is (i) not authorized and not effective
as the order of the customer under Section 4A-202, or (ii) not enforceable, in whole or in part, against the customer under Section 4A-203,
the bank shall refund any payment of the payment order received from the customer to the extent the bank is not entitled to enforce
payment and shall pay interest on the refundable amount calculated from the date the bank received payment to the date of the refund.
However, the customer is not entitled to interest from the bank on the amount to be refunded if the customer fails to exercise ordinary
care to determine that the order was not authorized by the customer and to notify the bank of the relevant facts within a reasonable time
not exceeding 90 days after the date the customer received notification from the bank that the order was accepted or that the customer’s
account was debited with respect to the order. The bank is not entitled to any recovery from the customer on account of a failure by the
customer to give notification as stated in this section.
(b) Reasonable time under subsection (a) may be fixed by agreement as stated in Section 1-302(b), but the obligation of a receiving
bank to refund payment as stated in subsection (a) may not otherwise be varied by agreement.
(68 Del. Laws, c. 430, § 1; 74 Del. Laws, c. 332, § 37.)
§ 4A-205. Erroneous payment orders.
(a) If an accepted payment order was transmitted pursuant to a security procedure for the detection of error and the payment order (i)
erroneously instructed payment to a beneficiary not intended by the sender, (ii) erroneously instructed payment in an amount greater than
the amount intended by the sender, or (iii) was an erroneously transmitted duplicate of a payment order previously sent by the sender,
the following rules apply:
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Title 6 - Commerce and Trade
(1) If the sender proves that the sender or a person acting on behalf of the sender pursuant to Section 4A-206 complied with the
security procedure and that the error would have been detected if the receiving bank had also complied, the sender is not obliged to
pay the order to the extent stated in paragraphs (2) and (3).
(2) If the funds transfer is completed on the basis of an erroneous payment order described in clause (i) or (iii) of subsection (a),
the sender is not obliged to pay the order and the receiving bank is entitled to recover from the beneficiary any amount paid to the
beneficiary to the extent allowed by the law governing mistake and restitution.
(3) If the funds transfer is completed on the basis of a payment order described in clause (ii) of subsection (a), the sender is not
obliged to pay the order to the extent the amount received by the beneficiary is greater than the amount intended by the sender. In
that case, the receiving bank is entitled to recover from the beneficiary the excess amount received to the extent allowed by the law
governing mistake and restitution.
(b) If (i) the sender of an erroneous payment order described in subsection (a) is not obliged to pay all or part of the order, and (ii) the
sender receives notification from the receiving bank that the order was accepted by the bank or that the sender’s account was debited with
respect to the order, the sender has a duty to exercise ordinary care, on the basis of information available to the sender, to discover the
error with respect to the order and to advise the bank of the relevant facts within a reasonable time, not exceeding 90 days, after the bank’s
notification was received by the sender. If the bank proves that the sender failed to perform that duty, the sender is liable to the bank for
the loss the bank proves it incurred as a result of the failure, but the liability of the sender may not exceed the amount of the sender’s order.
(c) This section applies to amendments to payment orders to the same extent it applies to payment orders.
(68 Del. Laws, c. 430, § 1.)
§ 4A-206. Transmission of payment order through funds-transfer or other communication system.
(a) If a payment order addressed to a receiving bank is transmitted to a funds-transfer system or other third-party communication system
for transmittal to the bank, the system is deemed to be an agent of the sender for the purpose of transmitting the payment order to the bank.
If there is a discrepancy between the terms of the payment order transmitted to the system and the terms of the payment order transmitted
by the system to the bank, the terms of the payment order of the sender are those transmitted by the system. This section does not apply
to a funds-transfer system of the Federal Reserve Banks.
(b) This section applies to cancellations and amendments of payment orders to the same extent it applies to payment orders.
(68 Del. Laws, c. 430, § 1.)
§ 4A-207. Misdescription of beneficiary.
(a) Subject to subsection (b), if, in a payment order received by the beneficiary’s bank, the name, bank account number, or other
identification of the beneficiary refers to a nonexistent or unidentifiable person or account, no person has rights as a beneficiary of the
order and acceptance of the order cannot occur.
(b) If a payment order received by the beneficiary’s bank identifies the beneficiary both by name and by an identifying or bank account
number and the name and number identify different persons, the following rules apply:
(1) Except as otherwise provided in subsection (c), if the beneficiary’s bank does not know that the name and number refer to
different persons, it may rely on the number as the proper identification of the beneficiary of the order. The beneficiary’s bank need
not determine whether the name and number refer to the same person.
(2) If the beneficiary’s bank pays the person identified by name or knows that the name and number identify different persons, no
person has rights as beneficiary except the person paid by the beneficiary’s bank if that person was entitled to receive payment from
the originator of the funds transfer. If no person has rights as beneficiary, acceptance of the order cannot occur.
(c) If (i) a payment order described in subsection (b) is accepted, (ii) the originator’s payment order described the beneficiary
inconsistently by name and number, and (iii) the beneficiary’s bank pays the person identified by number as permitted by subsection (b)
(1), the following rules apply:
(1) If the originator is a bank, the originator is obliged to pay its order.
(2) If the originator is not a bank and proves that the person identified by number was not entitled to receive payment from the
originator, the originator is not obliged to pay its order unless the originator’s bank proves that the originator, before acceptance of the
originator’s order, had notice that payment of a payment order issued by the originator might be made by the beneficiary’s bank on
the basis of an identifying or bank account number even if it identifies a person different from the named beneficiary. Proof of notice
may be made by any admissible evidence. The originator’s bank satisfies the burden of proof if it proves that the originator, before the
payment order was accepted, signed a writing stating the information to which the notice relates.
(d) In a case governed by subsection (b)(1), if the beneficiary’s bank rightfully pays the person identified by number and that person
was not entitled to receive payment from the originator, the amount paid may be recovered from that person to the extent allowed by the
law governing mistake and restitution as follows:
(1) If the originator is obliged to pay its payment order as stated in subsection (c), the originator has the right to recover.
(2) If the originator is not a bank and is not obliged to pay its payment order, the originator’s bank has the right to recover.
(68 Del. Laws, c. 430, § 1.)
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Title 6 - Commerce and Trade
§ 4A-208. Misdescription of intermediary bank or beneficiary’s bank.
(a) This subsection applies to a payment order identifying an intermediary bank or the beneficiary’s bank only by an identifying number.
(1) The receiving bank may rely on the number as the proper identification of the intermediary or beneficiary’s bank and need not
determine whether the number identifies a bank.
(2) The sender is obliged to compensate the receiving bank for any loss and expenses incurred by the receiving bank as a result of
its reliance on the number in executing or attempting to execute the order.
(b) This subsection applies to a payment order identifying an intermediary bank or the beneficiary’s bank both by name and an
identifying number if the name and number identify different persons.
(1) If the sender is a bank, the receiving bank may rely on the number as the proper identification of the intermediary or beneficiary’s
bank if the receiving bank, when it executes the sender’s order, does not know that the name and number identify different persons. The
receiving bank need not determine whether the name and number refer to the same person or whether the number refers to a bank. The
sender is obliged to compensate the receiving bank for any loss and expenses incurred by the receiving bank as a result of its reliance
on the number in executing or attempting to execute the order.
(2) If the sender is not a bank and the receiving bank proves that the sender, before the payment order was accepted, had notice that
the receiving bank might rely on the number as the proper identification of the intermediary or beneficiary’s bank even if it identifies
a person different from the bank identified by name, the rights and obligations of the sender and the receiving bank are governed by
subsection (b)(1), as though the sender were a bank. Proof of notice may be made by any admissible evidence. The receiving bank
satisfies the burden of proof if it proves that the sender, before the payment order was accepted, signed a writing stating the information
to which the notice relates.
(3) Regardless of whether the sender is a bank, the receiving bank may rely on the name as the proper identification of the intermediary
or beneficiary’s bank if the receiving bank, at the time it executes the sender’s order, does not know that the name and number identify
different persons. The receiving bank need not determine whether the name and number refer to the same person.
(4) If the receiving bank knows that the name and number identify different persons, reliance on either the name or the number in
executing the sender’s payment order is a breach of the obligation stated in Section 4A-302(a)(1).
(68 Del. Laws, c. 430, § 1.)
§ 4A-209. Acceptance of payment order.
(a) Subject to subsection (d), a receiving bank other than the beneficiary’s bank accepts a payment order when it executes the order.
(b) Subject to subsections (c) and (d), a beneficiary’s bank accepts a payment order at the earliest of the following times:
(1) when the bank (i) pays the beneficiary as stated in Section 4A-405(a) or 4A-405(b), or (ii) notifies the beneficiary of receipt of the
order or that the account of the beneficiary has been credited with respect to the order unless the notice indicates that the bank is rejecting
the order or that funds with respect to the order may not be withdrawn or used until receipt of payment from the sender of the order;
(2) when the bank receives payment of the entire amount of the sender’s order pursuant to Section 4A-403(a)(1) or 4A-403(a)(2); or
(3) the opening of the next funds-transfer business day of the bank following the payment date of the order if, at that time, the amount
of the sender’s order is fully covered by a withdrawable credit balance in an authorized account of the sender or the bank has otherwise
received full payment from the sender, unless the order was rejected before that time or is rejected within (i) one hour after that time,
or (ii) one hour after the opening of the next business day of the sender following the payment date if that time is later. If notice of
rejection is received by the sender after the payment date and the authorized account of the sender does not bear interest, the bank is
obliged to pay interest to the sender on the amount of the order for the number of days elapsing after the payment date to the day the
sender receives notice or learns that the order was not accepted, counting that day as an elapsed day. If the withdrawable credit balance
during that period falls below the amount of the order, the amount of interest payable is reduced accordingly.
(c) Acceptance of a payment order cannot occur before the order is received by the receiving bank. Acceptance does not occur under
subsection (b)(2) or (b)(3) if the beneficiary of the payment order does not have an account with the receiving bank, the account has been
closed, or the receiving bank is not permitted by law to receive credits for the beneficiary’s account.
(d) A payment order issued to the originator’s bank cannot be accepted until the payment date if the bank is the beneficiary’s bank, or
the execution date if the bank is not the beneficiary’s bank. If the originator’s bank executes the originator’s payment order before the
execution date or pays the beneficiary of the originator’s payment order before the payment date and the payment order is subsequently
canceled pursuant to Section 4A-211(b), the bank may recover from the beneficiary any payment received to the extent allowed by the
law governing mistake and restitution.
(68 Del. Laws, c. 430, § 1.)
§ 4A-210. Rejection of payment order.
(a) A payment order is rejected by the receiving bank by a notice of rejection transmitted to the sender orally, electronically, or in
writing. A notice of rejection need not use any particular words and is sufficient if it indicates that the receiving bank is rejecting the
order or will not execute or pay the order. Rejection is effective when the notice is given if transmission is by a means that is reasonable
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in the circumstances. If notice of rejection is given by a means that is not reasonable, rejection is effective when the notice is received.
If an agreement of the sender and receiving bank establishes the means to be used to reject a payment order, (i) any means complying
with the agreement is reasonable and (ii) any means not complying is not reasonable unless no significant delay in receipt of the notice
resulted from the use of the noncomplying means.
(b) This subsection applies if a receiving bank other than the beneficiary’s bank fails to execute a payment order despite the existence
on the execution date of a withdrawable credit balance in an authorized account of the sender sufficient to cover the order. If the sender
does not receive notice of rejection of the order on the execution date and the authorized account of the sender does not bear interest, the
bank is obliged to pay interest to the sender on the amount of the order for the number of days elapsing after the execution date to the
earlier of the day the order is canceled pursuant to Section 4A-211(d) or the day the sender receives notice or learns that the order was
not executed, counting the final day of the period as an elapsed day. If the withdrawable credit balance during that period falls below the
amount of the order, the amount of interest is reduced accordingly.
(c) If a receiving bank suspends payments, all unaccepted payment orders issued to it are deemed rejected at the time the bank suspends
payments.
(d) Acceptance of a payment order precludes a later rejection of the order. Rejection of a payment order precludes a later acceptance
of the order.
(68 Del. Laws, c. 430, § 1.)
§ 4A-211. Cancellation and amendment of payment order.
(a) A communication of the sender of a payment order cancelling or amending the order may be transmitted to the receiving bank
orally, electronically, or in writing. If a security procedure is in effect between the sender and the receiving bank, the communication
is not effective to cancel or amend the order unless the communication is verified pursuant to the security procedure or the bank agrees
to the cancellation or amendment.
(b) Subject to subsection (a), a communication by the sender cancelling or amending a payment order is effective to cancel or amend
the order if notice of the communication is received at a time and in a manner affording the receiving bank a reasonable opportunity to
act on the communication before the bank accepts the payment order.
(c) After a payment order has been accepted, cancellation or amendment of the order is not effective unless the receiving bank agrees
or a funds-transfer system rule allows cancellation or amendment without agreement of the bank.
(1) With respect to a payment order accepted by a receiving bank other than the beneficiary’s bank, cancellation or amendment is
not effective unless a conforming cancellation or amendment of the payment order issued by the receiving bank is also made.
(2) With respect to a payment order accepted by the beneficiary’s bank, cancellation or amendment is not effective unless the order
was issued in execution of an unauthorized payment order, or because of a mistake by a sender in the funds transfer which resulted in
the issuance of a payment order (i) that is a duplicate of a payment order previously issued by the sender, (ii) that orders payment to a
beneficiary not entitled to receive payment from the originator, or (iii) that orders payment in an amount greater than the amount the
beneficiary was entitled to receive from the originator. If the payment order is canceled or amended, the beneficiary’s bank is entitled
to recover from the beneficiary any amount paid to the beneficiary to the extent allowed by the law governing mistake and restitution.
(d) An unaccepted payment order is canceled by operation of law at the close of the fifth funds-transfer business day of the receiving
bank after the execution date or payment date of the order.
(e) A canceled payment order cannot be accepted. If an accepted payment order is canceled, the acceptance is nullified and no person
has any right or obligation based on the acceptance. Amendment of a payment order is deemed to be cancellation of the original order at
the time of amendment and issue of a new payment order in the amended form at the same time.
(f) Unless otherwise provided in an agreement of the parties or in a funds-transfer system rule, if the receiving bank, after accepting
a payment order, agrees to cancellation or amendment of the order by the sender or is bound by a funds-transfer system rule allowing
cancellation or amendment without the bank’s agreement, the sender, whether or not cancellation or amendment is effective, is liable to
the bank for any loss and expenses, including reasonable attorney’s fees, incurred by the bank as a result of the cancellation or amendment
or attempted cancellation or amendment.
(g) A payment order is not revoked by the death or legal incapacity of the sender unless the receiving bank knows of the death or of an
adjudication of incapacity by a court of competent jurisdiction and has reasonable opportunity to act before acceptance of the order.
(h) A funds-transfer system rule is not effective to the extent it conflicts with subsection (c)(2).
(68 Del. Laws, c. 430, § 1.)
§ 4A-212. Liability and duty of receiving bank regarding unaccepted payment order.
If a receiving bank fails to accept a payment order that it is obliged by express agreement to accept, the bank is liable for breach of
the agreement to the extent provided in the agreement or in this Article, but does not otherwise have any duty to accept a payment order
or, before acceptance, to take any action, or refrain from taking action, with respect to the order except as provided in this Article or
by express agreement. Liability based on acceptance arises only when acceptance occurs as stated in Section 4A-209, and liability is
limited to that provided in this Article. A receiving bank is not the agent of the sender or beneficiary of the payment order it accepts, or
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of any other party to the funds transfer, and the bank owes no duty to any party to the funds transfer except as provided in this Article
or by express agreement.
(68 Del. Laws, c. 430, § 1.)
Part 3
Execution of Sender’s Payment Order by Receiving Bank
§ 4A-301. Execution and execution date.
(a) A payment order is “executed” by the receiving bank when it issues a payment order intended to carry out the payment order
received by the bank. A payment order received by the beneficiary’s bank can be accepted but cannot be executed.
(b) “Execution date” of a payment order means the day on which the receiving bank may properly issue a payment order in execution of
the sender’s order. The execution date may be determined by instruction of the sender but cannot be earlier than the day the order is received
and, unless otherwise determined, is the day the order is received. If the sender’s instruction states a payment date, the execution date is
the payment date or an earlier date on which execution is reasonably necessary to allow payment to the beneficiary on the payment date.
(68 Del. Laws, c. 430, § 1.)
§ 4A-302. Obligations of receiving bank in execution of payment order.
(a) Except as provided in subsections (b) through (d), if the receiving bank accepts a payment order pursuant to Section 4A-209(a),
the bank has the following obligations in executing the order:
(1) The receiving bank is obliged to issue, on the execution date, a payment order complying with the sender’s order and to follow
the sender’s instructions concerning (i) any intermediary bank or funds-transfer system to be used in carrying out the funds transfer, or
(ii) the means by which payment orders are to be transmitted in the funds transfer. If the originator’s bank issues a payment order to an
intermediary bank, the originator’s bank is obliged to instruct the intermediary bank according to the instruction of the originator. An
intermediary bank in the funds transfer is similarly bound by an instruction given to it by the sender of the payment order it accepts.
(2) If the sender’s instruction states that the funds transfer is to be carried out telephonically or by wire transfer or otherwise indicates
that the funds transfer is to be carried out by the most expeditious means, the receiving bank is obliged to transmit its payment order
by the most expeditious available means, and to instruct any intermediary bank accordingly. If a sender’s instruction states a payment
date, the receiving bank is obliged to transmit its payment order at a time and by means reasonably necessary to allow payment to the
beneficiary on the payment date or as soon thereafter as is feasible.
(b) Unless otherwise instructed, a receiving bank executing a payment order may (i) use any funds-transfer system if use of that system
is reasonable in the circumstances, and (ii) issue a payment order to the beneficiary’s bank or to an intermediary bank through which
a payment order conforming to the sender’s order can expeditiously be issued to the beneficiary’s bank if the receiving bank exercises
ordinary care in the selection of the intermediary bank. A receiving bank is not required to follow an instruction of the sender designating
a funds-transfer system to be used in carrying out the funds transfer if the receiving bank, in good faith, determines that it is not feasible
to follow the instruction or that following the instruction would unduly delay completion of the funds transfer.
(c) Unless subsection (a)(2) applies or the receiving bank is otherwise instructed, the bank may execute a payment order by transmitting
its payment order by first class mail or by any means reasonable in the circumstances. If the receiving bank is instructed to execute the
sender’s order by transmitting its payment order by a particular means, the receiving bank may issue its payment order by the means
stated or by any means as expeditious as the means stated.
(d) Unless instructed by the sender, (i) the receiving bank may not obtain payment of its charges for services and expenses in connection
with the execution of the sender’s order by issuing a payment order in an amount equal to the amount of the sender’s order less the amount
of the charges, and (ii) may not instruct a subsequent receiving bank to obtain payment of its charges in the same manner.
(68 Del. Laws, c. 430, § 1.)
§ 4A-303. Erroneous execution of payment order.
(a) A receiving bank that (i) executes the payment order of the sender by issuing a payment order in an amount greater than the amount of
the sender’s order, or (ii) issues a payment order in execution of the sender’s order and then issues a duplicate order, is entitled to payment
of the amount of the sender’s order under Section 4A-402(c) if that subsection is otherwise satisfied. The bank is entitled to recover from
the beneficiary of the erroneous order the excess payment received to the extent allowed by the law governing mistake and restitution.
(b) A receiving bank that executes the payment order of the sender by issuing a payment order in an amount less than the amount of
the sender’s order is entitled to payment of the amount of the sender’s order under Section 4A-402(c) if (i) that subsection is otherwise
satisfied and (ii) the bank corrects its mistake by issuing an additional payment order for the benefit of the beneficiary of the sender’s
order. If the error is not corrected, the issuer of the erroneous order is entitled to receive or retain payment from the sender of the order
it accepted only to the extent of the amount of the erroneous order. This subsection does not apply if the receiving bank executes the
sender’s payment order by issuing a payment order in an amount less than the amount of the sender’s order for the purpose of obtaining
payment of its charges for services and expenses pursuant to instruction of the sender.
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(c) If a receiving bank executes the payment order of the sender by issuing a payment order to a beneficiary different from the beneficiary
of the sender’s order and the funds transfer is completed on the basis of that error, the sender of the payment order that was erroneously
executed and all previous senders in the funds transfer are not obliged to pay the payment orders they issued. The issuer of the erroneous
order is entitled to recover from the beneficiary of the order the payment received to the extent allowed by the law governing mistake
and restitution.
(68 Del. Laws, c. 430, § 1.)
§ 4A-304. Duty of sender to report erroneously executed payment order.
If the sender of a payment order that is erroneously executed as stated in Section 4A-303 receives notification from the receiving bank
that the order was executed or that the sender’s account was debited with respect to the order, the sender has a duty to exercise ordinary
care to determine, on the basis of information available to the sender, that the order was erroneously executed and to notify the bank of
the relevant facts within a reasonable time not exceeding 90 days after the notification from the bank was received by the sender. If the
sender fails to perform that duty, the bank is not obliged to pay interest on any amount refundable to the sender under Section 4A-402(d)
for the period before the bank learns of the execution error. The bank is not entitled to any recovery from the sender on account of a
failure by the sender to perform the duty stated in this section.
(68 Del. Laws, c. 430, § 1.)
§ 4A-305. Liability for late or improper execution or failure to execute payment order.
(a) If a funds transfer is completed but execution of a payment order by the receiving bank in breach of Section 4A-302 results in delay
in payment to the beneficiary, the bank is obliged to pay interest to either the originator or the beneficiary of the funds transfer for the
period of delay caused by the improper execution. Except as provided in subsection (c), additional damages are not recoverable.
(b) If execution of a payment order by a receiving bank in breach of Section 4A-302 results in (i) noncompletion of the funds transfer,
(ii) failure to use an intermediary bank designated by the originator, or (iii) issuance of a payment order that does not comply with the
terms of the payment order of the originator, the bank is liable to the originator for its expenses in the funds transfer and for incidental
expenses and interest losses, to the extent not covered by subsection (a), resulting from the improper execution. Except as provided in
subsection (c), additional damages are not recoverable.
(c) In addition to the amounts payable under subsections (a) and (b), damages, including consequential damages, are recoverable to
the extent provided in an express written agreement of the receiving bank.
(d) If a receiving bank fails to execute a payment order it was obliged by express agreement to execute, the receiving bank is liable to the
sender for its expenses in the transaction and for incidental expenses and interest losses resulting from the failure to execute. Additional
damages, including consequential damages, are recoverable to the extent provided in an express written agreement of the receiving bank,
but are not otherwise recoverable.
(e) Reasonable attorney’s fees are recoverable if demand for compensation under subsection (a) or (b) is made and refused before an
action is brought on the claim. If a claim is made for breach of an agreement under subsection (d) and the agreement does not provide
for damages, reasonable attorney’s fees are recoverable if demand for compensation under subsection (d) is made and refused before an
action is brought on the claim.
(f) Except as stated in this section, the liability of a receiving bank under subsections (a) and (b) may not be varied by agreement.
(68 Del. Laws, c. 430, § 1.)
Part 4
Payment
§ 4A-401. Payment date.
“Payment date” of a payment order means the day on which the amount of the order is payable to the beneficiary by the beneficiary’s
bank. The payment date may be determined by instruction of the sender but cannot be earlier than the day the order is received by the
beneficiary’s bank and, unless otherwise determined, is the day the order is received by the beneficiary’s bank.
(68 Del. Laws, c. 430, § 1.)
§ 4A-402. Obligation of sender to pay receiving bank.
(a) This section is subject to Sections 4A-205 and 4A-207.
(b) With respect to a payment order issued to the beneficiary’s bank, acceptance of the order by the bank obliges the sender to pay the
bank the amount of the order, but payment is not due until the payment date of the order.
(c) This subsection is subject to subsection (e) and to Section 4A-303. With respect to a payment order issued to a receiving bank other
than the beneficiary’s bank, acceptance of the order by the receiving bank obliges the sender to pay the bank the amount of the sender’s
order. Payment by the sender is not due until the execution date of the sender’s order. The obligation of that sender to pay its payment
order is excused if the funds transfer is not completed by acceptance by the beneficiary’s bank of a payment order instructing payment
to the beneficiary of that sender’s payment order.
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(d) If the sender of a payment order pays the order and was not obliged to pay all or part of the amount paid, the bank receiving payment
is obliged to refund payment to the extent the sender was not obliged to pay. Except as provided in Sections 4A-204 and 4A-304, interest
is payable on the refundable amount from the date of payment.
(e) If a funds transfer is not completed as stated in subsection (c) and an intermediary bank is obliged to refund payment as stated in
subsection (d) but is unable to do so because not permitted by applicable law or because the bank suspends payments, a sender in the funds
transfer that executed a payment order in compliance with an instruction, as stated in Section 4A-302(a)(1), to route the funds transfer
through that intermediary bank is entitled to receive or retain payment from the sender of the payment order that it accepted. The first
sender in the funds transfer that issued an instruction requiring routing through that intermediary bank is subrogated to the right of the
bank that paid the intermediary bank to refund as stated in subsection (d).
(f) The right of the sender of a payment order to be excused from the obligation to pay the order as stated in subsection (c) or to receive
refund under subsection (d) may not be varied by agreement.
(68 Del. Laws, c. 430, § 1.)
§ 4A-403. Payment by sender to receiving bank.
(a) Payment of the sender’s obligation under Section 4A-402 to pay the receiving bank occurs as follows:
(1) If the sender is a bank, payment occurs when the receiving bank receives final settlement of the obligation through a Federal
Reserve Bank or through a funds-transfer system.
(2) If the sender is a bank and the sender (i) credited an account of the receiving bank with the sender, or (ii) caused an account of
the receiving bank in another bank to be credited, payment occurs when the credit is withdrawn or, if not withdrawn, at midnight of
the day on which the credit is withdrawable and the receiving bank learns of that fact.
(3) If the receiving bank debits an account of the sender with the receiving bank, payment occurs when the debit is made to the extent
the debit is covered by a withdrawable credit balance in the account.
(b) If the sender and receiving bank are members of a funds-transfer system that nets obligations multilaterally among participants,
the receiving bank receives final settlement when settlement is complete in accordance with the rules of the system. The obligation of
the sender to pay the amount of a payment order transmitted through the funds-transfer system may be satisfied, to the extent permitted
by the rules of the system, by setting off and applying against the sender’s obligation the right of the sender to receive payment from
the receiving bank of the amount of any other payment order transmitted to the sender by the receiving bank through the funds-transfer
system. The aggregate balance of obligations owed by each sender to each receiving bank in the funds-transfer system may be satisfied,
to the extent permitted by the rules of the system, by setting off and applying against that balance the aggregate balance of obligations
owed to the sender by other members of the system. The aggregate balance is determined after the right of setoff stated in the second
sentence of this subsection has been exercised.
(c) If two banks transmit payment orders to each other under an agreement that settlement of the obligations of each bank to the other
under Section 4A-402 will be made at the end of the day or other period, the total amount owed with respect to all orders transmitted
by one bank shall be set off against the total amount owed with respect to all orders transmitted by the other bank. To the extent of the
setoff, each bank has made payment to the other.
(d) In a case not covered by subsection (a), the time when payment of the sender’s obligation under Section 4A-402(b) or 4A-402(c)
occurs is governed by applicable principles of law that determine when an obligation is satisfied.
(68 Del. Laws, c. 430, § 1.)
§ 4A-404. Obligation of beneficiary’s bank to pay and give notice to beneficiary.
(a) Subject to Sections 4A-211(e), 4A-405(d), and 4A-405(e), if a beneficiary’s bank accepts a payment order, the bank is obliged to
pay the amount of the order to the beneficiary of the order. Payment is due on the payment date of the order, but if acceptance occurs on the
payment date after the close of the funds-transfer business day of the bank, payment is due on the next funds-transfer business day. If the
bank refuses to pay after demand by the beneficiary and receipt of notice of particular circumstances that will give rise to consequential
damages as a result of nonpayment, the beneficiary may recover damages resulting from the refusal to pay to the extent the bank had notice
of the damages, unless the bank proves that it did not pay because of a reasonable doubt concerning the right of the beneficiary to payment.
(b) If a payment order accepted by the beneficiary’s bank instructs payment to an account of the beneficiary, the bank is obliged to
notify the beneficiary of receipt of the order before midnight of the next funds-transfer business day following the payment date. If the
payment order does not instruct payment to an account of the beneficiary, the bank is required to notify the beneficiary only if notice is
required by the order. Notice may be given by first class mail or any other means reasonable in the circumstances. If the bank fails to give
the required notice, the bank is obliged to pay interest to the beneficiary on the amount of the payment order from the day notice should
have been given until the day the beneficiary learned of receipt of the payment order by the bank. No other damages are recoverable.
Reasonable attorney’s fees are also recoverable if demand for interest is made and refused before an action is brought on the claim.
(c) The right of a beneficiary to receive payment and damages as stated in subsection (a) may not be varied by agreement or a fundstransfer system rule. The right of a beneficiary to be notified as stated in subsection (b) may be varied by agreement of the beneficiary or
by a funds-transfer system rule if the beneficiary is notified of the rule before initiation of the funds transfer.
(68 Del. Laws, c. 430, § 1.)
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§ 4A-405. Payment by beneficiary’s bank to beneficiary.
(a) If the beneficiary’s bank credits an account of the beneficiary of a payment order, payment of the bank’s obligation under Section
4A-404(a) occurs when and to the extent (i) the beneficiary is notified of the right to withdraw the credit, (ii) the bank lawfully applies
the credit to a debt of the beneficiary, or (iii) funds with respect to the order are otherwise made available to the beneficiary by the bank.
(b) If the beneficiary’s bank does not credit an account of the beneficiary of a payment order, the time when payment of the bank’s
obligation under Section 4A-404(a) occurs is governed by principles of law that determine when an obligation is satisfied.
(c) Except as stated in subsections (d) and (e), if the beneficiary’s bank pays the beneficiary of a payment order under a condition to
payment or agreement of the beneficiary giving the bank the right to recover payment from the beneficiary if the bank does not receive
payment of the order, the condition to payment or agreement is not enforceable.
(d) A funds-transfer system rule may provide that payments made to beneficiaries of funds transfers made through the system are
provisional until receipt of payment by the beneficiary’s bank of the payment order it accepted. A beneficiary’s bank that makes a payment
that is provisional under the rule is entitled to refund from the beneficiary if (i) the rule requires that both the beneficiary and the originator
be given notice of the provisional nature of the payment before the funds transfer is initiated, (ii) the beneficiary, the beneficiary’s bank
and the originator’s bank agreed to be bound by the rule, and (iii) the beneficiary’s bank did not receive payment of the payment order that
it accepted. If the beneficiary is obliged to refund payment to the beneficiary’s bank, acceptance of the payment order by the beneficiary’s
bank is nullified and no payment by the originator of the funds transfer to the beneficiary occurs under Section 4A-406.
(e) This subsection applies to a funds transfer that includes a payment order transmitted over a funds-transfer system that (i) nets
obligations multilaterally among participants, and (ii) has in effect a loss-sharing agreement among participants for the purpose of
providing funds necessary to complete settlement of the obligations of one or more participants that do not meet their settlement
obligations. If the beneficiary’s bank in the funds transfer accepts a payment order and the system fails to complete settlement pursuant
to its rules with respect to any payment order in the funds transfer, (i) the acceptance by the beneficiary’s bank is nullified and no person
has any right or obligation based on the acceptance, (ii) the beneficiary’s bank is entitled to recover payment from the beneficiary, (iii) no
payment by the originator to the beneficiary occurs under Section 4A-406, and (iv) subject to Section 4A-402(e), each sender in the funds
transfer is excused from its obligation to pay its payment order under Section 4A-402(c) because the funds transfer has not been completed.
(68 Del. Laws, c. 430, § 1.)
§ 4A-406. Payment by originator to beneficiary; discharge of underlying obligation.
(a) Subject to Sections 4A-211(e), 4A-405(d), and 4A-405(e), the originator of a funds transfer pays the beneficiary of the originator’s
payment order (i) at the time a payment order for the benefit of the beneficiary is accepted by the beneficiary’s bank in the funds transfer
and (ii) in an amount equal to the amount of the order accepted by the beneficiary’s bank, but not more than the amount of the originator’s
order.
(b) If payment under subsection (a) is made to satisfy an obligation, the obligation is discharged to the same extent discharge would
result from payment to the beneficiary of the same amount in money, unless (i) the payment under subsection (a) was made by a means
prohibited by the contract of the beneficiary with respect to the obligation, (ii) the beneficiary, within a reasonable time after receiving
notice of receipt of the order by the beneficiary’s bank, notified the originator of the beneficiary’s refusal of the payment, (iii) funds with
respect to the order were not withdrawn by the beneficiary or applied to a debt of the beneficiary, and (iv) the beneficiary would suffer
a loss that could reasonably have been avoided if payment had been made by a means complying with the contract. If payment by the
originator does not result in discharge under this section, the originator is subrogated to the rights of the beneficiary to receive payment
from the beneficiary’s bank under Section 4A-404(a).
(c) For the purpose of determining whether discharge of an obligation occurs under subsection (b), if the beneficiary’s bank accepts
a payment order in an amount equal to the amount of the originator’s payment order less charges of one or more receiving banks in the
funds transfer, payment to the beneficiary is deemed to be in the amount of the originator’s order unless upon demand by the beneficiary
the originator does not pay the beneficiary the amount of the deducted charges.
(d) Rights of the originator or of the beneficiary of a funds transfer under this section may be varied only by agreement of the originator
and the beneficiary.
(68 Del. Laws, c. 430, § 1.)
Part 5
Miscellaneous Provisions
§ 4A-501. Variation by agreement and effect of funds-transfer system rule.
(a) Except as otherwise provided in this Article, the rights and obligations of a party to a funds transfer may be varied by agreement
of the affected party.
(b) “Funds-transfer system rule” means a rule of an association of banks (i) governing transmission of payment orders by means of a
funds-transfer system of the association or rights and obligations with respect to those orders, or (ii) to the extent the rule governs rights
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and obligations between banks that are parties to a funds transfer in which a Federal Reserve Bank, acting as an intermediary bank, sends
a payment order to the beneficiary’s bank. Except as otherwise provided in this Article, a funds-transfer system rule governing rights and
obligations between participating banks using the system may be effective even if the rule conflicts with this Article and indirectly affects
another party to the funds transfer who does not consent to the rule. A funds-transfer system rule may also govern rights and obligations
of parties other than participating banks using the system to the extent stated in Sections 4A-404(c), 4A-405(d), and 4A-507(c).
(68 Del. Laws, c. 430, § 1.)
§ 4A-502. Creditor process served on receiving bank; setoff by beneficiary’s bank.
(a) As used in this section, “creditor process” means levy, attachment, garnishment, notice of lien, sequestration, or similar process
issued by or on behalf of a creditor or other claimant with respect to an account.
(b) This subsection applies to creditor process with respect to an authorized account of the sender of a payment order if the creditor
process is served on the receiving bank. For the purpose of determining rights with respect to the creditor process, if the receiving bank
accepts the payment order the balance in the authorized account is deemed to be reduced by the amount of the payment order to the extent
the bank did not otherwise receive payment of the order, unless the creditor process is served at a time and in a manner affording the bank
a reasonable opportunity to act on it before the bank accepts the payment order.
(c) If a beneficiary’s bank has received a payment order for payment to the beneficiary’s account in the bank, the following rules apply:
(1) The bank may credit the beneficiary’s account. The amount credited may be set off against an obligation owed by the beneficiary
to the bank or may be applied to satisfy creditor process served on the bank with respect to the account.
(2) The bank may credit the beneficiary’s account and allow withdrawal of the amount credited unless creditor process with respect
to the account is served at a time and in a manner affording the bank a reasonable opportunity to act to prevent withdrawal.
(3) If creditor process with respect to the beneficiary’s account has been served and the bank has had a reasonable opportunity to act
on it, the bank may not reject the payment order except for a reason unrelated to the service of process.
(d) Creditor process with respect to a payment by the originator to the beneficiary pursuant to a funds transfer may be served only on
the beneficiary’s bank with respect to the debt owed by that bank to the beneficiary. Any other bank served with the creditor process is
not obliged to act with respect to the process.
(68 Del. Laws, c. 430, § 1.)
§ 4A-503. Injunction or restraining order with respect to funds transfer.
For proper cause and in compliance with applicable law, a court may restrain (i) a person from issuing a payment order to initiate a funds
transfer, (ii) an originator’s bank from executing the payment order of the originator, or (iii) the beneficiary’s bank from releasing funds
to the beneficiary or the beneficiary from withdrawing the funds. A court may not otherwise restrain a person from issuing a payment
order, paying or receiving payment of a payment order, or otherwise acting with respect to a funds transfer.
(68 Del. Laws, c. 430, § 1.)
§ 4A-504. Order in which items and payment orders may be charged to account; order of withdrawals from
account.
(a) If a receiving bank has received more than one payment order of the sender or one or more payment orders and other items that are
payable from the sender’s account, the bank may charge the sender’s account with respect to the various orders and items in any sequence.
(b) In determining whether a credit to an account has been withdrawn by the holder of the account or applied to a debt of the holder
of the account, credits first made to the account are first withdrawn or applied.
(68 Del. Laws, c. 430, § 1.)
§ 4A-505. Preclusion of objection to debit of customer’s account.
If a receiving bank has received payment from its customer with respect to a payment order issued in the name of the customer as
sender and accepted by the bank, and the customer received notification reasonably identifying the order, the customer is precluded from
asserting that the bank is not entitled to retain the payment unless the customer notifies the bank of the customer’s objection to the payment
within one year after the notification was received by the customer.
(68 Del. Laws, c. 430, § 1.)
§ 4A-506. Rate of interest.
(a) If, under this Article, a receiving bank is obliged to pay interest with respect to a payment order issued to the bank, the amount
payable may be determined (i) by agreement of the sender and receiving bank, or (ii) by a funds-transfer system rule if the payment order
is transmitted through a funds-transfer system.
(b) If the amount of interest is not determined by an agreement or rule as stated in subsection (a), the amount is calculated by multiplying
the applicable Federal Funds rate by the amount on which interest is payable, and then multiplying the product by the number of days for
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which interest is payable. The applicable Federal Funds rate is the average of the Federal Funds rates published by the Federal Reserve
Bank of New York for each of the days for which interest is payable divided by 360. The Federal Funds rate for any day on which a
published rate is not available is the same as the published rate for the next preceding day for which there is a published rate. If a receiving
bank that accepted a payment order is required to refund payment to the sender of the order because the funds transfer was not completed,
but the failure to complete was not due to any fault by the bank, the interest payable is reduced by a percentage equal to the reserve
requirement on deposits of the receiving bank.
(68 Del. Laws, c. 430, § 1.)
§ 4A-507. Choice of law.
(a) The following rules apply unless the affected parties otherwise agree or subsection (c) applies:
(1) The rights and obligations between the sender of a payment order and the receiving bank are governed by the law of the jurisdiction
in which the receiving bank is located.
(2) The rights and obligations between the beneficiary’s bank and the beneficiary are governed by the law of the jurisdiction in
which the beneficiary’s bank is located.
(3) The issue of when payment is made pursuant to a funds transfer by the originator to the beneficiary is governed by the law of
the jurisdiction in which the beneficiary’s bank is located.
(b) If the parties described in each paragraph of subsection (a) have made an agreement selecting the law of a particular jurisdiction
to govern rights and obligations between each other, the law of that jurisdiction governs those rights and obligations, whether or not the
payment order or the funds transfer bears a reasonable relation to that jurisdiction.
(c) A funds-transfer system rule may select the law of a particular jurisdiction to govern (i) rights and obligations between participating
banks with respect to payment orders transmitted or processed through the system, or (ii) the rights and obligations of some or all parties
to a funds transfer any part of which is carried out by means of the system. A choice of law made pursuant to clause (i) is binding on
participating banks. A choice of law made pursuant to clause (ii) is binding on the originator, other sender, or a receiving bank having
notice that the funds-transfer system might be used in the funds transfer and of the choice of law by the system when the originator,
other sender, or receiving bank issued or accepted a payment order. The beneficiary of a funds transfer is bound by the choice of law
if, when the funds transfer is initiated, the beneficiary has notice that the funds-transfer system might be used in the funds transfer and
of the choice of law by the system. The law of a jurisdiction selected pursuant to this subsection may govern, whether or not that law
bears a reasonable relation to the matter in issue.
(d) In the event of inconsistency between an agreement under subsection (b) and a choice-of-law rule under subsection (c), the agreement
under subsection (b) prevails.
(e) If a funds transfer is made by use of more than one funds-transfer system and there is inconsistency between choice-of-law rules
of the systems, the matter in issue is governed by the law of the selected jurisdiction that has the most significant relationship to the
matter in issue.
(68 Del. Laws, c. 430, § 1.)
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Subtitle I
Uniform Commercial Code
Article 5
Letters of Credit
§ 5-101. Short title.
This Article may be cited as Uniform Commercial Code — Letters of Credit.
(5A Del. C. 1953, § 5-101; 55 Del. Laws, c. 349; 71 Del. Laws, c. 393, § 1.)
§ 5-102. Definitions.
(a) In this Article:
(1) “Adviser” means a person who, at the request of the issuer, a confirmer, or another adviser, notifies or requests another adviser
to notify the beneficiary that a letter of credit has been issued, confirmed, or amended.
(2) “Applicant” means a person at whose request or for whose account a letter of credit is issued. The term includes a person who
requests an issuer to issue a letter of credit on behalf of another if the person making the request undertakes an obligation to reimburse
the issuer.
(3) “Beneficiary” means a person who under the terms of a letter of credit is entitled to have its complying presentation honored.
The term includes a person to whom drawing rights have been transferred under a transferable letter of credit.
(4) “Confirmer” means a nominated person who undertakes, at the request or with the consent of the issuer, to honor a presentation
under a letter of credit issued by another.
(5) “Dishonor” of a letter of credit means failure timely to honor or to take an interim action, such as acceptance of a draft, that
may be required by the letter of credit.
(6) “Document” means a draft or other demand, document of title, investment security, certificate, invoice, or other record, statement,
or representation of fact, law, right, or opinion (i) which is presented in a written or other medium permitted by the letter of credit
or, unless prohibited by the letter of credit, by the standard practice referred to in Section 5-108(e) and (ii) which is capable of being
examined for compliance with the terms and conditions of the letter of credit. A document may not be oral.
(7) “Good faith” means honesty in fact in the conduct or transaction concerned.
(8) “Honor” of a letter of credit means performance of the issuer’s undertaking in the letter of credit to pay or deliver an item of
value. Unless the letter of credit otherwise provides, “honor” occurs
(i) upon payment,
(ii) if the letter of credit provides for acceptance, upon acceptance of a draft and, at maturity, its payment, or
(iii) if the letter of credit provides for incurring a deferred obligation, upon incurring the obligation and, at maturity, its performance.
(9) “Issuer” means a bank or other person that issues a letter of credit, but does not include an individual who makes an engagement
for personal, family, or household purposes.
(10) “Letter of credit” means a definite undertaking that satisfies the requirements of Section 5-104 by an issuer to a beneficiary
at the request or for the account of an applicant or, in the case of a financial institution, to itself or for its own account, to honor a
documentary presentation by payment or delivery of an item of value.
(11) “Nominated person” means a person whom the issuer (i) designates or authorizes to pay, accept, negotiate, or otherwise give
value under a letter of credit and (ii) undertakes by agreement or custom and practice to reimburse.
(12) “Presentation” means delivery of a document to an issuer or nominated person for honor or giving of value under a letter of credit.
(13) “Presenter” means a person making a presentation as or on behalf of a beneficiary or nominated person.
(14) “Record” means information that is inscribed on a tangible medium, or that is stored in an electronic or other medium and is
retrievable in perceivable form.
(15) “Successor of a beneficiary” means a person who succeeds to substantially all of the rights of a beneficiary by operation of
law, including a corporation with or into which the beneficiary has been merged or consolidated, an administrator, executor, personal
representative, trustee in bankruptcy, debtor in possession, liquidator, and receiver.
(b) Definitions in other Articles applying to this Article and the Sections in which they appear are:
“Accept” or “Acceptance” Section 3-409
“Value” Sections 3-303, 4-211
(c) Article 1 contains certain additional general definitions and principles of construction and interpretation applicable throughout this
Article.
(5A Del. C. 1953, § 5-103; 55 Del. Laws, c. 349; 71 Del. Laws, c. 393, § 1.)
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§ 5-103. Scope.
(a) This Article applies to letters of credit and to certain rights and obligations arising out of transactions involving letters of credit.
(b) The statement of a rule in this Article does not by itself require, imply, or negate application of the same or a different rule to a
situation not provided for, or to a person not specified, in this Article.
(c) With the exception of this subsection, subsections (a) and (d), Sections 5-102(a)(9) and (10), 5-106(d), and 5-114(d), and except
to the extent prohibited in Sections 1-302 and 5-117(d), the effect of this Article may be varied by agreement or by a provision stated
or incorporated by reference in an undertaking. A term in an agreement or undertaking generally excusing liability or generally limiting
remedies for failure to perform obligations is not sufficient to vary obligations prescribed by this Article.
(d) Rights and obligations of an issuer to a beneficiary or a nominated person under a letter of credit are independent of the existence,
performance, or nonperformance of a contract or arrangement out of which the letter of credit arises or which underlies it, including
contracts or arrangements between the issuer and the applicant and between the applicant and the beneficiary.
(5A Del. C. 1953, § 5-102; 55 Del. Laws, c. 349; 71 Del. Laws, c. 393, § 1; 74 Del. Laws, c. 332, § 38.)
§ 5-104. Formal requirements.
A letter of credit, confirmation, advice, transfer, amendment, or cancellation may be issued in any form that is a record and is
authenticated (i) by a signature or (ii) in accordance with the agreement of the parties or the standard practice referred to in Section
5-108(e).
(5A Del. C. 1953, § 5-104; 55 Del. Laws, c. 349; 71 Del. Laws, c. 393, § 1.)
§ 5-105. Consideration.
Consideration is not required to issue, amend, transfer, or cancel a letter of credit, advice, or confirmation.
(5A Del. C. 1953, § 5-105; 55 Del. Laws, c. 349; 71 Del. Laws, c. 393, § 1.)
§ 5-106. Issuance, amendment, cancellation, and duration.
(a) A letter of credit is issued and becomes enforceable according to its terms against the issuer when the issuer sends or otherwise
transmits it to the person requested to advise or to the beneficiary. A letter of credit is revocable only if it so provides.
(b) After a letter of credit is issued, rights and obligations of a beneficiary, applicant, confirmer, and issuer are not affected by an
amendment or cancellation to which that person has not consented except to the extent the letter of credit provides that it is revocable or
that the issuer may amend or cancel the letter of credit without that consent.
(c) If there is no stated expiration date or other provision that determines its duration, a letter of credit expires one year after its stated
date of issuance or, if none is stated, after the date on which it is issued.
(d) A letter of credit that states that it is perpetual expires five years after its stated date of issuance, or if none is stated, after the date
on which it is issued.
(5A Del. C. 1953, § 5-106; 55 Del. Laws, c. 349; 71 Del. Laws, c. 393, § 1.)
§ 5-107. Confirmer, nominated person, and adviser.
(a) A confirmer is directly obligated on a letter of credit and has the rights and obligations of an issuer to the extent of its confirmation.
The confirmer also has rights against and obligations to the issuer as if the issuer were an applicant and the confirmer had issued the letter
of credit at the request and for the account of the issuer.
(b) A nominated person who is not a confirmer is not obligated to honor or otherwise give value for a presentation.
(c) A person requested to advise may decline to act as an adviser. An adviser that is not a confirmer is not obligated to honor or give
value for a presentation. An adviser undertakes to the issuer and to the beneficiary accurately to advise the terms of the letter of credit,
confirmation, amendment, or advice received by that person and undertakes to the beneficiary to check the apparent authenticity of the
request to advise. Even if the advice is inaccurate, the letter of credit, confirmation, or amendment is enforceable as issued.
(d) A person who notifies a transferee beneficiary of the terms of a letter of credit, confirmation, amendment, or advice has the rights
and obligations of an adviser under subsection (c). The terms in the notice to the transferee beneficiary may differ from the terms in
any notice to the transferor beneficiary to the extent permitted by the letter of credit, confirmation, amendment, or advice received by
the person who so notifies.
(5A Del. C. 1953, § 5-107; 55 Del. Laws, c. 349; 71 Del. Laws, c. 393, § 1.)
§ 5-108. Issuer’s rights and obligations.
(a) Except as otherwise provided in Section 5-109, an issuer shall honor a presentation that, as determined by the standard practice
referred to in subsection (e), appears on its face strictly to comply with the terms and conditions of the letter of credit. Except as otherwise
provided in Section 5-113 and unless otherwise agreed with the applicant, an issuer shall dishonor a presentation that does not appear
so to comply.
(b) An issuer has a reasonable time after presentation, but not beyond the end of the seventh business day of the issuer after the day
of its receipt of documents:
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(1) to honor,
(2) if the letter of credit provides for honor to be completed more than seven business days after presentation, to accept a draft or
incur a deferred obligation, or
(3) to give notice to the presenter of discrepancies in the presentation.
(c) Except as otherwise provided in subsection (d), an issuer is precluded from asserting as a basis for dishonor any discrepancy if
timely notice is not given, or any discrepancy not stated in the notice if timely notice is given.
(d) Failure to give the notice specified in subsection (b) or to mention fraud, forgery, or expiration in the notice does not preclude
the issuer from asserting as a basis for dishonor fraud or forgery as described in Section 5-109(a) or expiration of the letter of credit
before presentation.
(e) An issuer shall observe standard practice of financial institutions that regularly issue letters of credit. Determination of the issuer’s
observance of the standard practice is a matter of interpretation for the court. The court shall offer the parties a reasonable opportunity
to present evidence of the standard practice.
(f) An issuer is not responsible for:
(1) the performance or nonperformance of the underlying contract, arrangement, or transaction,
(2) an act or omission of others, or
(3) observance or knowledge of the usage of a particular trade other than the standard practice referred to in subsection (e).
(g) If an undertaking constituting a letter of credit under Section 5-102(a)(10) contains non-documentary conditions, an issuer shall
disregard the non-documentary conditions and treat them as if they were not stated.
(h) An issuer that has dishonored a presentation shall return the documents or hold them at the disposal of, and send advice to that
effect to, the presenter.
(i) An issuer that has honored a presentation as permitted or required by this Article:
(1) is entitled to be reimbursed by the applicant in immediately available funds not later than the date of its payment of funds;
(2) takes the documents free of claims of the beneficiary or presenter;
(3) is precluded from asserting a right of recourse on a draft under Sections 3-414 and 3-415;
(4) except as otherwise provided in Sections 5-110 and 5-117, is precluded from restitution of money paid or other value given by
mistake to the extent the mistake concerns discrepancies in the documents or tender which are apparent on the face of the presentation;
and
(5) is discharged to the extent of its performance under the letter of credit.
(5A Del. C. 1953, § 5-109; 55 Del. Laws, c. 349; 71 Del. Laws, c. 393, § 1.)
§ 5-109. Fraud and forgery.
(a) If a presentation is made that appears on its face strictly to comply with the terms and conditions of the letter of credit, but a
required document is forged or materially fraudulent, or honor of the presentation would facilitate a material fraud by the beneficiary
on the issuer or applicant:
(1) the issuer shall honor the presentation, if honor is demanded by (i) a nominated person who has given value in good faith and
without notice of forgery or material fraud, (ii) a confirmer who has honored its confirmation in good faith, (iii) a holder in due course
of a draft drawn under the letter of credit which was taken after acceptance by the issuer or nominated person, or (iv) an assignee of
the issuer’s or nominated person’s deferred obligation that was taken for value and without notice of forgery or material fraud after
the obligation was incurred by the issuer or nominated person; and
(2) the issuer, acting in good faith, may honor or dishonor the presentation in any other case.
(b) If an applicant claims that a required document is forged or materially fraudulent or that honor of the presentation would facilitate
a material fraud by the beneficiary on the issuer or applicant, a court of competent jurisdiction may temporarily or permanently enjoin
the issuer from honoring a presentation or grant similar relief against the issuer or other persons only if the court finds that:
(1) the relief is not prohibited under the law applicable to an accepted draft or deferred obligation incurred by the issuer;
(2) a beneficiary, issuer, or nominated person who may be adversely affected is adequately protected against loss that it may suffer
because the relief is granted;
(3) all of the conditions to entitle a person to the relief under the law of this State have been met; and
(4) on the basis of the information submitted to the court, the applicant is more likely than not to succeed under its claim of forgery
or material fraud and the person demanding honor does not qualify for protection under subsection (a)(1).
(71 Del. Laws, c. 393, § 1.)
§ 5-110. Warranties.
(a) If its presentation is honored, the beneficiary warrants:
(1) to the issuer, any other person to whom presentation is made, and the applicant that there is no fraud or forgery of the kind
described in Section 5-109(a); and
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(2) to the applicant that the drawing does not violate any agreement between the applicant and beneficiary or any other agreement
intended by them to be augmented by the letter of credit.
(b) The warranties in subsection (a) are in addition to warranties arising under Article 3, 4, 7, and 8 because of the presentation or
transfer of documents covered by any of those Articles.
(5A Del. C. 1953, § 5-111; 55 Del. Laws, c. 349; 71 Del. Laws, c. 393, § 1.)
§ 5-111. Remedies.
(a) If an issuer wrongfully dishonors or repudiates its obligation to pay money under a letter of credit before presentation, the beneficiary,
successor, or nominated person presenting on its own behalf may recover from the issuer the amount that is the subject of the dishonor
or repudiation. If the issuer’s obligation under the letter of credit is not for the payment of money, the claimant may obtain specific
performance or, at the claimant’s election, recover an amount equal to the value of performance from the issuer. In either case, the claimant
may also recover incidental but not consequential damages. The claimant is not obligated to take action to avoid damages that might be
due from the issuer under this subsection. If, although not obligated to do so, the claimant avoids damages, the claimant’s recovery from
the issuer must be reduced by the amount of damages avoided. The issuer has the burden of proving the amount of damages avoided. In
the case of repudiation the claimant need not present any document.
(b) If an issuer wrongfully dishonors a draft or demand presented under a letter of credit or honors a draft or demand in breach of
its obligation to the applicant, the applicant may recover damages resulting from the breach, including incidental but not consequential
damages, less any amount saved as a result of the breach.
(c) If an adviser or nominated person other than a confirmer breaches an obligation under this Article or an issuer breaches an obligation
not covered in subsection (a) or (b), a person to whom the obligation is owed may recover damages resulting from the breach, including
incidental but not consequential damages, less any amount saved as a result of the breach. To the extent of the confirmation, a confirmer
has the liability of an issuer specified in this subsection and subsections (a) and (b).
(d) An issuer, nominated person, or adviser who is found liable under subsection (a), (b), or (c) shall pay interest on the amount owed
thereunder from the date of wrongful dishonor or other appropriate date.
(e) Reasonable attorney’s fees and other expenses of litigation must be awarded to the prevailing party in an action in which a remedy
is sought under this article.
(f) Damages that would otherwise be payable by a party for breach of an obligation under this article may be liquidated by agreement
or undertaking, but only in an amount or by a formula that is reasonable in light of the harm anticipated.
(5A Del. C. 1953, § 5-115; 55 Del. Laws, c. 349; 71 Del. Laws, c. 393, § 1.)
§ 5-112. Transfer of letter of credit.
(a) Except as otherwise provided in Section 5-113, unless a letter of credit provides that it is transferable, the right of a beneficiary to
draw or otherwise demand performance under a letter of credit may not be transferred.
(b) Even if a letter of credit provides that it is transferable, the issuer may refuse to recognize or carry out a transfer if:
(1) the transfer would violate applicable law; or
(2) the transferor or transferee has failed to comply with any requirement stated in the letter of credit or any other requirement relating
to transfer imposed by the issuer which is within the standard practice referred to in Section 5-108(e) or is otherwise reasonable under
the circumstances.
(5A Del. C. 1953, § 5-116; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 5; 71 Del. Laws, c. 393, § 1.)
§ 5-113. Transfer by operation of law.
(a) A successor of a beneficiary may consent to amendments, sign and present documents, and receive payment or other items of value
in the name of the beneficiary without disclosing its status as a successor.
(b) A successor of a beneficiary may consent to amendments, sign and present documents, and receive payment or other items of value
in its own name as the disclosed successor of the beneficiary. Except as otherwise provided in subsection (e), an issuer shall recognize
a disclosed successor of a beneficiary as beneficiary in full substitution for its predecessor upon compliance with the requirements for
recognition by the issuer of a transfer of drawing rights by operation of law under the standard practice referred to in Section 5-108(e) or,
in the absence of such a practice, compliance with other reasonable procedures sufficient to protect the issuer.
(c) An issuer is not obliged to determine whether a purported successor is a successor of a beneficiary or whether the signature of a
purported successor is genuine or authorized.
(d) Honor of a purported successor’s apparently complying presentation under subsection (a) or (b) has the consequences specified in
Section 5-108(i) even if the purported successor is not the successor of a beneficiary. Documents signed in the name of the beneficiary
or of a disclosed successor by a person who is neither the beneficiary nor the successor of the beneficiary are forged documents for the
purposes of Section 5-109.
(e) An issuer whose rights of reimbursement are not covered by subsection (d) or substantially similar law and any confirmer or
nominated person may decline to recognize a presentation under subsection (b).
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(f) A beneficiary whose name is changed after the issuance of a letter of credit has the same rights and obligations as a successor of
a beneficiary under this Section.
(71 Del. Laws, c. 393, § 1.)
§ 5-114. Assignment of proceeds.
(a) In this Section, “proceeds of a letter of credit” means the cash, check, accepted draft, or other item of value paid or delivered upon
honor or giving of value by the issuer or any nominated person under the letter of credit. The term does not include a beneficiary’s drawing
rights or documents presented by the beneficiary.
(b) A beneficiary may assign its right to part or all of the proceeds of a letter of credit. The beneficiary may do so before presentation as
a present assignment of its right to receive proceeds contingent upon its compliance with the terms and conditions of the letter of credit.
(c) An issuer or nominated person need not recognize an assignment of proceeds of a letter of credit until it consents to the assignment.
(d) An issuer or nominated person has no obligation to give or withhold its consent to an assignment of proceeds of a letter of credit,
but consent may not be unreasonably withheld if the assignee possesses and exhibits the letter of credit and presentation of the letter of
credit is a condition to honor.
(e) Rights of a transferee beneficiary or nominated person are independent of the beneficiary’s assignment of the proceeds of a letter
of credit and are superior to the assignee’s right to the proceeds.
(f) Neither the rights recognized by this Section between an assignee and an issuer, transferee beneficiary, or nominated person nor
the issuer’s or nominated person’s payment of proceeds to an assignee or a third person affect the rights between the assignee and any
person other than the issuer, transferee beneficiary, or nominated person. The mode of creating and perfecting a security interest in or
granting an assignment of a beneficiary’s rights to proceeds is governed by Article 9 or other law. Against persons other than the issuer,
transferee beneficiary, or nominated person, the rights and obligations arising upon the creation of a security interest or other assignment
of a beneficiary’s right to proceeds and its perfection are governed by Article 9 or other law.
(71 Del. Laws, c. 393, § 1.)
§ 5-115. Statute of limitations.
An action to enforce a right or obligation arising under this Article must be commenced within one year after the expiration date of the
relevant letter of credit or one year after the cause of action accrues, whichever occurs later. A cause of action accrues when the breach
occurs, regardless of the aggrieved party’s lack of knowledge of the breach.
(71 Del. Laws, c. 393, § 1.)
§ 5-116. Choice of law and forum.
(a) The liability of an issuer, nominated person, or adviser for action or omission is governed by the law of the jurisdiction chosen by
an agreement in the form of a record signed or otherwise authenticated by the affected parties in the manner provided in Section 5-104
or by a provision in the person’s letter of credit, confirmation, or other undertaking. The jurisdiction whose law is chosen need not bear
any relation to the transaction.
(b) Unless subsection (a) applies, the liability of an issuer, nominated person, or adviser for action or omission is governed by the law of
the jurisdiction in which the person is located. The person is considered to be located at the address indicated in the person’s undertaking.
If more than one address is indicated, the person is considered to be located at the address from which the person’s undertaking was
issued. For the purpose of jurisdiction, choice of law, and recognition of interbranch letters of credit, but not enforcement of a judgment,
all branches of a bank are considered separate juridical entities and a bank is considered to be located at the place where its relevant
branch is considered to be located under this subsection.
(c) Except as otherwise provided in this subsection, the liability of an issuer, nominated person, or adviser is governed by any rules of
custom or practice, such as the Uniform Customs and Practice for Documentary Credits, to which the letter of credit, confirmation, or
other undertaking is expressly made subject. If (i) this Article would govern the liability of an issuer, nominated person, or adviser under
subsection (a) or (b), (ii) the relevant undertaking incorporates rules of custom or practice, and (iii) there is conflict between this Article
and those rules as applied to that undertaking, those rules govern except to the extent of any conflict with the non-variable provisions
specified in Section 5-103(c).
(d) If there is conflict between this Article and Article 3, 4, 4A, or 9, this Article governs.
(e) The forum for settling disputes arising out of an undertaking within this Article may be chosen in the manner and with the binding
effect that governing law may be chosen in accordance with subsection (a).
(71 Del. Laws, c. 393, § 1.)
§ 5-117. Subrogation of issuer, applicant, and nominated person.
(a) An issuer that honors a beneficiary’s presentation is subrogated to the rights of the beneficiary to the same extent as if the issuer
were a secondary obligor of the underlying obligation owed to the beneficiary and of the applicant to the same extent as if the issuer were
the secondary obligor of the underlying obligation owed to the applicant.
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(b) An applicant that reimburses an issuer is subrogated to the rights of the issuer against any beneficiary, presenter, or nominated person
to the same extent as if the applicant were the secondary obligor of the obligations owed to the issuer and has the rights of subrogation
of the issuer to the rights of the beneficiary stated in subsection (a).
(c) A nominated person who pays or gives value against a draft or demand presented under a letter of credit is subrogated to the rights of:
(1) the issuer against the applicant to the same extent as if the nominated person were a secondary obligor of the obligation owed
to the issuer by the applicant;
(2) the beneficiary to the same extent as if the nominated person were a secondary obligor of the underlying obligation owed to
the beneficiary; and
(3) the applicant to same extent as if the nominated person were a secondary obligor of the underlying obligation owed to the applicant.
(d) Notwithstanding any agreement or term to the contrary, the rights of subrogation stated in subsections (a) and (b) do not arise until
the issuer honors the letter of credit or otherwise pays and the rights in subsection (c) do not arise until the nominated person pays or
otherwise gives value. Until then, the issuer, nominated person, and the applicant do not derive under this Section present or prospective
rights forming the basis of a claim, defense, or excuse.
(71 Del. Laws, c. 393, § 1.)
§ 5-118. Security interest of issuer or nominated person.
(a) An issuer or nominated person has a security interest in a document presented under a letter of credit to the extent that the issuer
or nominated person honors or gives value for the presentation.
(b) So long as and to the extent that an issuer or nominated person has not been reimbursed or has not otherwise recovered the value
given with respect to a security interest in a document under subsection (a), the security interest continues and is subject to Article 9, but:
(1) a security agreement is not necessary to make the security interest enforceable under Section 9-203(b)(3);
(2) if the document is presented in a medium other than a written or other tangible medium, the security interest is perfected; and
(3) if the document is presented in a written or other tangible medium and is not a certificated security, chattel paper, a document
of title, an instrument, or a letter of credit, the security interest is perfected and has priority over a conflicting security interest in the
document so long as the debtor does not have possession of the document.
(72 Del. Laws, c. 401, § 16.)
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Subtitle I
Uniform Commercial Code
Article 6
Bulk Transfers [Repealed].
§§ 6-101 — 6-111. Short title; “bulk transfers”; transfers of equipment; enterprises subject to this Article;
bulk transfers subject to this Article; transfers excepted from this Article; schedule of property; list of
creditors; notice to creditors; application of the proceeds; the notice; auction sales; “auctioneer”; what
creditors protected; subsequent transfers; limitation of actions and levies [Repealed].
Repealed by 70 Del. Laws, c. 439, § 1, eff. July 3, 1996.
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Title 6 - Commerce and Trade
Subtitle I
Uniform Commercial Code
Article 7
Documents of Title
Part 1
General
§ 7-101. Short title.
This article may be cited as Uniform Commercial Code-Documents of Title.
(5A Del. C. 1953, § 7-101; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-102. Definitions and index of definitions.
(a) In this article, unless the context otherwise requires:
(1) “Bailee” means a person that by a warehouse receipt, bill of lading, or other document of title acknowledges possession of goods
and contracts to deliver them.
(2) “Carrier” means a person that issues a bill of lading.
(3) “Consignee” means a person named in a bill of lading to which or to whose order the bill promises delivery.
(4) “Consignor” means a person named in a bill of lading as the person from which the goods have been received for shipment.
(5) “Delivery order” means a record that contains an order to deliver goods directed to a warehouse, carrier, or other person that in
the ordinary course of business issues warehouse receipts or bills of lading.
(6) [Reserved.]
(7) “Goods” means all things that are treated as movable for the purposes of a contract for storage or transportation.
(8) “Issuer” means a bailee that issues a document of title or, in the case of an unaccepted delivery order, the person that orders
the possessor of goods to deliver. The term includes a person for which an agent or employee purports to act in issuing a document if
the agent or employee has real or apparent authority to issue documents, even if the issuer did not receive any goods, the goods were
misdescribed, or in any other respect the agent or employee violated the issuer’s instructions.
(9) “Person entitled under the document” means the holder, in the case of a negotiable document of title, or the person to which
delivery of the goods is to be made by the terms of, or pursuant to instructions in a record under, a nonnegotiable document of title.
(10) [Reserved.]
(11) “Sign” means, with present intent to authenticate or adopt a record:
(A) To execute or adopt a tangible symbol; or
(B) To attach to or logically associate with the record an electronic sound, symbol, or process.
(12) “Shipper” means a person that enters into a contract of transportation with a carrier.
(13) “Warehouse” means a person engaged in the business of storing goods for hire.
(b) Definitions in other articles applying to this article and the sections in which they appear are:
(1) “Contract for sale”, § 2-106.
(2) “Lessee in the ordinary course of business”, § 2A-103.
(3) “Receipt” of goods, § 2-103.
(c) In addition, Article 1 contains general definitions and principles of construction and interpretation applicable throughout this article.
(5A Del. C. 1953, § 7-102; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-103. Relation of article to treaty or statute.
(a) This article is subject to any treaty or statute of the United States or regulatory statute of this state to the extent the treaty, statute,
or regulatory statute is applicable.
(b) This article does not modify or repeal any law prescribing the form or content of a document of title or the services or facilities to
be afforded by a bailee, or otherwise regulating a bailee’s business in respects not specifically treated in this article. However, violation
of such a law does not affect the status of a document of title that otherwise is within the definition of a document of title.
(c) This act (as defined by § 7-701) modifies, limits, and supersedes the federal Electronic Signatures in Global and National Commerce
Act (15 U.S.C. § 7001, et. seq.) but does not modify, limit, or supersede § 101(c) of that act (15 U.S.C. § 7001(c)) or authorize electronic
delivery of any of the notices described in § 103(b) of that act (15 U.S.C. § 7003(b)).
(d) To the extent there is a conflict between the Uniform Electronic Transactions Act [Chapter 12A of this title] and this article, this
article governs.
(5A Del. C. 1953, § 7-103; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
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§ 7-104. Negotiable and nonnegotiable document of title.
(a) Except as otherwise provided in subsection (c), a document of title is negotiable if by its terms the goods are to be delivered to
bearer or to the order of a named person.
(b) A document of title other than one described in subsection (a) is nonnegotiable. A bill of lading that states that the goods are
consigned to a named person is not made negotiable by a provision that the goods are to be delivered only against an order in a record
signed by the same or another named person.
(c) A document of title is nonnegotiable if, at the time it is issued, the document has a conspicuous legend, however expressed, that
it is nonnegotiable.
(5A Del. C. 1953, § 7-104; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-105. Reissuance in alternative medium.
(a) Upon request of a person entitled under an electronic document of title, the issuer of the electronic document may issue a tangible
document of title as a substitute for the electronic document if:
(1) The person entitled under the electronic document surrenders control of the document to the issuer; and
(2) The tangible document when issued contains a statement that it is issued in substitution for the electronic document.
(b) Upon issuance of a tangible document of title in substitution for an electronic document of title in accordance with subsection (a):
(1) The electronic document ceases to have any effect or validity; and
(2) The person that procured issuance of the tangible document warrants to all subsequent persons entitled under the tangible
document that the warrantor was a person entitled under the electronic document when the warrantor surrendered control of the
electronic document to the issuer.
(c) Upon request of a person entitled under a tangible document of title, the issuer of the tangible document may issue an electronic
document of title as a substitute for the tangible document if:
(1) The person entitled under the tangible document surrenders possession of the document to the issuer; and
(2) The electronic document when issued contains a statement that it is issued in substitution for the tangible document.
(d) Upon issuance of an electronic document of title in substitution for a tangible document of title in accordance with subsection (c):
(1) The tangible document ceases to have any effect or validity; and
(2) The person that procured issuance of the electronic document warrants to all subsequent persons entitled under the electronic
document that the warrantor was a person entitled under the tangible document when the warrantor surrendered possession of the
tangible document to the issuer.
(74 Del. Laws, c. 332, § 39.)
§ 7-106. Control of electronic document of title.
(a) A person has control of an electronic document of title if a system employed for evidencing the transfer of interests in the electronic
document reliably establishes that person as the person to which the electronic document was issued or transferred.
(b) A system satisfies subsection (a), and a person is deemed to have control of an electronic document of title, if the document is
created, stored, and assigned in such a manner that:
(1) A single authoritative copy of the document exists which is unique, identifiable, and, except as otherwise provided in paragraphs
(4), (5), and (6), unalterable;
(2) The authoritative copy identifies the person asserting control as:
(A) The person to which the document was issued; or
(B) If the authoritative copy indicates that the document has been transferred, the person to which the document was most recently
transferred;
(3) The authoritative copy is communicated to and maintained by the person asserting control or its designated custodian;
(4) Copies or amendments that add or change an identified assignee of the authoritative copy can be made only with the consent
of the person asserting control;
(5) Each copy of the authoritative copy and any copy of a copy is readily identifiable as a copy that is not the authoritative copy; and
(6) Any amendment of the authoritative copy is readily identifiable as authorized or unauthorized.
(74 Del. Laws, c. 332, § 39.)
Part 2
Warehouse Receipts: Special Provisions
§ 7-201. Person that may issue a warehouse receipt; storage under bond.
(a) A warehouse receipt may be issued by any warehouse.
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(b) If goods, including distilled spirits and agricultural commodities, are stored under a statute requiring a bond against withdrawal or a
license for the issuance of receipts in the nature of warehouse receipts, a receipt issued for the goods is deemed to be a warehouse receipt
even if issued by a person that is the owner of the goods and is not a warehouse.
(5A Del. C. 1953, § 7-201; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-202. Form of warehouse receipt; effect of omission.
(a) A warehouse receipt need not be in any particular form.
(b) Unless a warehouse receipt provides for each of the following, the warehouse is liable for damages caused to a person injured by
its omission:
(1) A statement of the location of the warehouse facility where the goods are stored;
(2) The date of issue of the receipt;
(3) The unique identification code of the receipt;
(4) A statement whether the goods received will be delivered to the bearer, to a named person, or to a named person or its order;
(5) The rate of storage and handling charges, unless goods are stored under a field warehousing arrangement, in which case a
statement of that fact is sufficient on a nonnegotiable receipt;
(6) A description of the goods or the packages containing them;
(7) The signature of the warehouse or its agent;
(8) If the receipt is issued for goods that the warehouse owns, either solely, jointly, or in common with others, a statement of the
fact of that ownership; and
(9) A statement of the amount of advances made and of liabilities incurred for which the warehouse claims a lien or security interest,
unless the precise amount of advances made or liabilities incurred, at the time of the issue of the receipt, is unknown to the warehouse
or to its agent that issued the receipt, in which case a statement of the fact that advances have been made or liabilities incurred and
the purpose of the advances or liabilities is sufficient.
(c) A warehouse may insert in its receipt any terms that are not contrary to the Uniform Commercial Code and do not impair its
obligation of delivery under § 7-403 or its duty of care under § 7-204. Any contrary provision is ineffective.
(5A Del. C. 1953, § 7-202; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-203. Liability for nonreceipt or misdescription.
A party to or purchaser for value in good faith of a document of title, other than a bill of lading, that relies upon the description of
the goods in the document may recover from the issuer damages caused by the nonreceipt or misdescription of the goods, except to the
extent that:
(1) The document conspicuously indicates that the issuer does not know whether all or part of the goods in fact were received or
conform to the description, such as a case in which the description is in terms of marks or labels or kind, quantity, or condition, or
the receipt or description is qualified by “contents, condition, and quality unknown”, “said to contain”, or words of similar import,
if the indication is true; or
(2) The party or purchaser otherwise has notice of the nonreceipt or misdescription.
(5A Del. C. 1953, § 7-203; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-204. Duty of care; contractual limitation of warehouse’s liability.
(a) A warehouse is liable for damages for loss of or injury to the goods caused by its failure to exercise care with regard to the goods
that a reasonably careful person would exercise under similar circumstances. Unless otherwise agreed, the warehouse is not liable for
damages that could not have been avoided by the exercise of that care.
(b) Damages may be limited by a term in the warehouse receipt or storage agreement limiting the amount of liability in case of loss or
damage beyond which the warehouse is not liable. Such a limitation is not effective with respect to the warehouse’s liability for conversion
to its own use. On request of the bailor in a record at the time of signing the storage agreement or within a reasonable time after receipt
of the warehouse receipt, the warehouse’s liability may be increased on part or all of the goods covered by the storage agreement or the
warehouse receipt. In this event, increased rates may be charged based on an increased valuation of the goods.
(c) Reasonable provisions as to the time and manner of presenting claims and commencing actions based on the bailment may be
included in the warehouse receipt or storage agreement.
(5A Del. C. 1953, § 7-204; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-205. Title under warehouse receipt defeated in certain cases.
A buyer in ordinary course of business of fungible goods sold and delivered by a warehouse that is also in the business of buying
and selling such goods takes the goods free of any claim under a warehouse receipt even if the receipt is negotiable and has been duly
negotiated.
(5A Del. C. 1953, § 7-205; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
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§ 7-206. Termination of storage at warehouse’s option.
(a) A warehouse, by giving notice to the person on whose account the goods are held and any other person known to claim an interest in
the goods, may require payment of any charges and removal of the goods from the warehouse at the termination of the period of storage
fixed by the document of title or, if a period is not fixed, within a stated period not less than 30 days after the warehouse gives notice. If
the goods are not removed before the date specified in the notice, the warehouse may sell them pursuant to § 7-210.
(b) If a warehouse in good faith believes that goods are about to deteriorate or decline in value to less than the amount of its lien within
the time provided in subsection (a) and § 7-210, the warehouse may specify in the notice given under subsection (a) any reasonable
shorter time for removal of the goods and, if the goods are not removed, may sell them at public sale held not less than one week after
a single advertisement or posting.
(c) If, as a result of a quality or condition of the goods of which the warehouse did not have notice at the time of deposit, the goods
are a hazard to other property, the warehouse facilities, or other persons, the warehouse may sell the goods at public or private sale
without advertisement or posting on reasonable notification to all persons known to claim an interest in the goods. If the warehouse,
after a reasonable effort, is unable to sell the goods, it may dispose of them in any lawful manner and does not incur liability by reason
of that disposition.
(d) A warehouse shall deliver the goods to any person entitled to them under this article upon due demand made at any time before
sale or other disposition under this section.
(e) A warehouse may satisfy its lien from the proceeds of any sale or disposition under this section but shall hold the balance for delivery
on the demand of any person to which the warehouse would have been bound to deliver the goods.
(5A Del. C. 1953, § 7-206; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-207. Goods must be kept separate; fungible goods.
(a) Unless the warehouse receipt provides otherwise, a warehouse shall keep separate the goods covered by each receipt so as to permit
at all times identification and delivery of those goods. However, different lots of fungible goods may be commingled.
(b) If different lots of fungible goods are commingled, the goods are owned in common by the persons entitled thereto and the warehouse
is severally liable to each owner for that owner’s share. If, because of overissue, a mass of fungible goods is insufficient to meet all the
receipts the warehouse has issued against it, the persons entitled include all holders to which overissued receipts have been duly negotiated.
(5A Del. C. 1953, § 7-207; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-208. Altered warehouse receipts.
If a blank in a negotiable tangible warehouse receipt has been filled in without authority, a good-faith purchaser for value and without
notice of the lack of authority may treat the insertion as authorized. Any other unauthorized alteration leaves any tangible or electronic
warehouse receipt enforceable against the issuer according to its original tenor.
(5A Del. C. 1953, § 7-208; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-209. Lien of warehouse.
(a) A warehouse has a lien against the bailor on the goods covered by a warehouse receipt or storage agreement or on the proceeds
thereof in its possession for charges for storage or transportation, including demurrage and terminal charges, insurance, labor, or other
charges, present or future, in relation to the goods, and for expenses necessary for preservation of the goods or reasonably incurred in
their sale pursuant to law. If the person on whose account the goods are held is liable for similar charges or expenses in relation to other
goods whenever deposited and it is stated in the warehouse receipt or storage agreement that a lien is claimed for charges and expenses in
relation to other goods, the warehouse also has a lien against the goods covered by the warehouse receipt or storage agreement or on the
proceeds thereof in its possession for those charges and expenses, whether or not the other goods have been delivered by the warehouse.
However, as against a person to which a negotiable warehouse receipt is duly negotiated, a warehouse’s lien is limited to charges in an
amount or at a rate specified in the warehouse receipt or, if no charges are so specified, to a reasonable charge for storage of the specific
goods covered by the receipt subsequent to the date of the receipt.
(b) A warehouse may also reserve a security interest against the bailor for the maximum amount specified on the receipt for charges
other than those specified in subsection (a), such as for money advanced and interest. The security interest is governed by Article 9.
(c) A warehouse’s lien for charges and expenses under subsection (a) or a security interest under subsection (b) is also effective against
any person that so entrusted the bailor with possession of the goods that a pledge of them by the bailor to a good-faith purchaser for value
would have been valid. However, the lien or security interest is not effective against a person that before issuance of a document of title
had a legal interest or a perfected security interest in the goods and that did not:
(1) Deliver or entrust the goods or any document of title covering the goods to the bailor or the bailor’s nominee with:
(A) Actual or apparent authority to ship, store, or sell;
(B) Power to obtain delivery under § 7-403; or
(C) Power of disposition under §§ 2-403, 2A-304(2), 2A-305(2), 9-320, or 9-321(c) or other statute or rule of law; or
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(2) Acquiesce in the procurement by the bailor or its nominee of any document.
(d) A warehouse’s lien on household goods for charges and expenses in relation to the goods under subsection (a) is also effective
against all persons if the depositor was the legal possessor of the goods at the time of deposit. In this subsection, “household goods”
means furniture, furnishings, or personal effects used by the depositor in a dwelling.
(e) A warehouse loses its lien on any goods that it voluntarily delivers or unjustifiably refuses to deliver.
(5A Del. C. 1953, § 7-209; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-210. Enforcement of warehouse’s lien.
(a) Except as otherwise provided in subsection (b), a warehouse’s lien may be enforced by public or private sale of the goods, in bulk or
in packages, at any time or place and on any terms that are commercially reasonable, after notifying all persons known to claim an interest
in the goods. The notification must include a statement of the amount due, the nature of the proposed sale, and the time and place of any
public sale. The fact that a better price could have been obtained by a sale at a different time or in a method different from that selected
by the warehouse is not of itself sufficient to establish that the sale was not made in a commercially reasonable manner. The warehouse
sells in a commercially reasonable manner if the warehouse sells the goods in the usual manner in any recognized market therefore, sells
at the price current in that market at the time of the sale, or otherwise sells in conformity with commercially reasonable practices among
dealers in the type of goods sold. A sale of more goods than apparently necessary to be offered to ensure satisfaction of the obligation is
not commercially reasonable, except in cases covered by the preceding sentence.
(b) A warehouse may enforce its lien on goods, other than goods stored by a merchant in the course of its business, only if the following
requirements are satisfied:
(1) All persons known to claim an interest in the goods must be notified.
(2) The notification must include an itemized statement of the claim, a description of the goods subject to the lien, a demand for
payment within a specified time not less than 10 days after receipt of the notification, and a conspicuous statement that unless the claim
is paid within that time the goods will be advertised for sale and sold by auction at a specified time and place.
(3) The sale must conform to the terms of the notification.
(4) The sale must be held at the nearest suitable place to where the goods are held or stored.
(5) After the expiration of the time given in the notification, an advertisement of the sale must be published once a week for two
weeks consecutively in a newspaper of general circulation where the sale is to be held. The advertisement must include a description of
the goods, the name of the person on whose account the goods are being held, and the time and place of the sale. The sale must take place
at least 15 days after the first publication. If there is no newspaper of general circulation where the sale is to be held, the advertisement
must be posted at least 10 days before the sale in not fewer than six conspicuous places in the neighborhood of the proposed sale.
(c) Before any sale pursuant to this section, any person claiming a right in the goods may pay the amount necessary to satisfy the lien
and the reasonable expenses incurred in complying with this section. In that event, the goods may not be sold but must be retained by
the warehouse subject to the terms of the receipt and this article.
(d) A warehouse may buy at any public sale held pursuant to this section.
(e) A purchaser in good faith of goods sold to enforce a warehouse’s lien takes the goods free of any rights of persons against which
the lien was valid, despite the warehouse’s noncompliance with this section.
(f) A warehouse may satisfy its lien from the proceeds of any sale pursuant to this section but shall hold the balance, if any, for delivery
on demand to any person to which the warehouse would have been bound to deliver the goods.
(g) The rights provided by this section are in addition to all other rights allowed by law to a creditor against a debtor.
(h) If a lien is on goods stored by a merchant in the course of its business, the lien may be enforced in accordance with subsection
(a) or (b).
(i) A warehouse is liable for damages caused by failure to comply with the requirements for sale under this section and, in case of
willful violation, is liable for conversion.
(5A Del. C. 1953, § 7-210; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
Part 3
Bills of Lading: Special Provisions
§ 7-301. Liability for nonreceipt or misdescription; “said to contain”; “shipper’s weight, load, and count”;
improper handling.
(a) A consignee of a nonnegotiable bill of lading which has given value in good faith, or a holder to which a negotiable bill has been
duly negotiated, relying upon the description of the goods in the bill or upon the date shown in the bill, may recover from the issuer
damages caused by the misdating of the bill or the nonreceipt or misdescription of the goods, except to the extent that the bill indicates
that the issuer does not know whether any part or all of the goods in fact were received or conform to the description, such as in a case in
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which the description is in terms of marks or labels or kind, quantity, or condition or the receipt or description is qualified by “contents
or condition of contents of packages unknown”, “said to contain”, “shipper’s weight, load, and count,” or words of similar import, if
that indication is true.
(b) If goods are loaded by the issuer of a bill of lading;
(1) The issuer shall count the packages of goods if shipped in packages and ascertain the kind and quantity if shipped in bulk; and
(2) Words such as “shipper’s weight, load, and count,” or words of similar import indicating that the description was made by the
shipper are ineffective except as to goods concealed in packages.
(c) If bulk goods are loaded by a shipper that makes available to the issuer of a bill of lading adequate facilities for weighing those
goods, the issuer shall ascertain the kind and quantity within a reasonable time after receiving the shipper’s request in a record to do so.
In that case, “shipper’s weight” or words of similar import are ineffective.
(d) The issuer of a bill of lading, by including in the bill the words “shipper’s weight, load, and count,” or words of similar import,
may indicate that the goods were loaded by the shipper, and, if that statement is true, the issuer is not liable for damages caused by the
improper loading. However, omission of such words does not imply liability for damages caused by improper loading.
(e) A shipper guarantees to an issuer the accuracy at the time of shipment of the description, marks, labels, number, kind, quantity,
condition, and weight, as furnished by the shipper, and the shipper shall indemnify the issuer against damage caused by inaccuracies in
those particulars. This right of indemnity does not limit the issuer’s responsibility or liability under the contract of carriage to any person
other than the shipper.
(5A Del. C. 1953, § 7-301; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-302. Through bills of lading and similar documents of title.
(a) The issuer of a through bill of lading, or other document of title embodying an undertaking to be performed in part by a person
acting as its agent or by a performing carrier, is liable to any person entitled to recover on the bill or other document for any breach
by the other person or the performing carrier of its obligation under the bill or other document. However, to the extent that the bill or
other document covers an undertaking to be performed overseas or in territory not contiguous to the continental United States or an
undertaking including matters other than transportation, this liability for breach by the other person or the performing carrier may be
varied by agreement of the parties.
(b) If goods covered by a through bill of lading or other document of title embodying an undertaking to be performed in part by a
person other than the issuer are received by that person, the person is subject, with respect to its own performance while the goods are in
its possession, to the obligation of the issuer. The person’s obligation is discharged by delivery of the goods to another person pursuant
to the bill or other document and does not include liability for breach by any other person or by the issuer.
(c) The issuer of a through bill of lading or other document of title described in subsection (a) is entitled to recover from the performing
carrier, or other person in possession of the goods when the breach of the obligation under the bill or other document occurred:
(1) The amount it may be required to pay to any person entitled to recover on the bill or other document for the breach, as may be
evidenced by any receipt, judgment, or transcript of judgment; and
(2) The amount of any expense reasonably incurred by the issuer in defending any action commenced by any person entitled to
recover on the bill or other document for the breach.
(5A Del. C. 1953, § 7-302; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-303. Diversion; reconsignment; change of instructions.
(a) Unless the bill of lading otherwise provides, a carrier may deliver the goods to a person or destination other than that stated in the
bill or may otherwise dispose of the goods, without liability for misdelivery, on instructions from:
(1) The holder of a negotiable bill;
(2) The consignor on a nonnegotiable bill, even if the consignee has given contrary instructions;
(3) The consignee on a nonnegotiable bill in the absence of contrary instructions from the consignor, if the goods have arrived at the
billed destination or if the consignee is in possession of the tangible bill or in control of the electronic bill; or
(4) The consignee on a nonnegotiable bill, if the consignee is entitled as against the consignor to dispose of the goods.
(b) Unless instructions described in subsection (a) are included in a negotiable bill of lading, a person to which the bill is duly negotiated
may hold the bailee according to the original terms.
(5A Del. C. 1953, § 7-303; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-304. Tangible bills of lading in a set.
(a) Except as customary in international transportation, a tangible bill of lading may not be issued in a set of parts. The issuer is liable
for damages caused by violation of this subsection.
(b) If a tangible bill of lading is lawfully issued in a set of parts, each of which contains an identification code and is expressed to be
valid only if the goods have not been delivered against any other part, the whole of the parts constitutes one bill.
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(c) If a tangible negotiable bill of lading is lawfully issued in a set of parts and different parts are negotiated to different persons, the
title of the holder to which the first due negotiation is made prevails as to both the document of title and the goods even if any later holder
may have received the goods from the carrier in good faith and discharged the carrier’s obligation by surrendering its part.
(d) A person that negotiates or transfers a single part of a tangible bill of lading issued in a set is liable to holders of that part as if
it were the whole set.
(e) The bailee shall deliver in accordance with Part 4 against the first presented part of a tangible bill of lading lawfully issued in a set.
Delivery in this manner discharges the bailee’s obligation on the whole bill.
(5A Del. C. 1953, § 7-304; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-305. Destination bills.
(a) Instead of issuing a bill of lading to the consignor at the place of shipment, a carrier, at the request of the consignor, may procure
the bill to be issued at destination or at any other place designated in the request.
(b) Upon request of any person entitled as against a carrier to control the goods while in transit and on surrender of possession or
control of any outstanding bill of lading or other receipt covering the goods, the issuer, subject to § 7-105, may procure a substitute bill
to be issued at any place designated in the request.
(5A Del. C. 1953, § 7-305; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-306. Altered bills of lading.
An unauthorized alteration or filling in of a blank in a bill of lading leaves the bill enforceable according to its original tenor.
(5A Del. C. 1953, § 7-306; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-307. Lien of carrier.
(a) A carrier has a lien on the goods covered by a bill of lading or on the proceeds thereof in its possession for charges after the date
of the carrier’s receipt of the goods for storage or transportation, including demurrage and terminal charges, and for expenses necessary
for preservation of the goods incident to their transportation or reasonably incurred in their sale pursuant to law. However, against a
purchaser for value of a negotiable bill of lading, a carrier’s lien is limited to charges stated in the bill or the applicable tariffs or, if no
charges are stated, a reasonable charge.
(b) A lien for charges and expenses under subsection (a) on goods that the carrier was required by law to receive for transportation
is effective against the consignor or any person entitled to the goods unless the carrier had notice that the consignor lacked authority to
subject the goods to those charges and expenses. Any other lien under subsection (a) is effective against the consignor and any person
that permitted the bailor to have control or possession of the goods unless the carrier had notice that the bailor lacked authority.
(c) A carrier loses its lien on any goods that it voluntarily delivers or unjustifiably refuses to deliver.
(5A Del. C. 1953, § 7-307; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-308. Enforcement of carrier’s lien.
(a) A carrier’s lien on goods may be enforced by public or private sale of the goods, in bulk or in packages, at any time or place and
on any terms that are commercially reasonable, after notifying all persons known to claim an interest in the goods. The notification must
include a statement of the amount due, the nature of the proposed sale, and the time and place of any public sale. The fact that a better price
could have been obtained by a sale at a different time or in a method different from that selected by the carrier is not of itself sufficient to
establish that the sale was not made in a commercially reasonable manner. The carrier sells goods in a commercially reasonable manner
if the carrier sells the goods in the usual manner in any recognized market therefor, sells at the price current in that market at the time
of the sale, or otherwise sells in conformity with commercially reasonable practices among dealers in the type of goods sold. A sale of
more goods than apparently necessary to be offered to ensure satisfaction of the obligation is not commercially reasonable, except in
cases covered by the preceding sentence.
(b) Before any sale pursuant to this section, any person claiming a right in the goods may pay the amount necessary to satisfy the lien
and the reasonable expenses incurred in complying with this section. In that event, the goods may not be sold but must be retained by
the carrier, subject to the terms of the bill of lading and this article.
(c) A carrier may buy at any public sale pursuant to this section.
(d) A purchaser in good faith of goods sold to enforce a carrier’s lien takes the goods free of any rights of persons against which the
lien was valid, despite the carrier’s noncompliance with this section.
(e) A carrier may satisfy its lien from the proceeds of any sale pursuant to this section but shall hold the balance, if any, for delivery
on demand to any person to which the carrier would have been bound to deliver the goods.
(f) The rights provided by this section are in addition to all other rights allowed by law to a creditor against a debtor.
(g) A carrier’s lien may be enforced pursuant to either subsection (a) or the procedure set forth in § 7-210(b).
(h) A carrier is liable for damages caused by failure to comply with the requirements for sale under this section and, in case of willful
violation, is liable for conversion.
(5A Del. C. 1953, § 7-308; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
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§ 7-309. Duty of care; contractual limitation of carrier’s liability.
(a) A carrier that issues a bill of lading, whether negotiable or nonnegotiable, shall exercise the degree of care in relation to the goods
which a reasonably careful person would exercise under similar circumstances. This subsection does not affect any statute, regulation, or
rule of law that imposes liability upon a common carrier for damages not caused by its negligence.
(b) Damages may be limited by a term in the bill of lading or in a transportation agreement that the carrier’s liability may not exceed
a value stated in the bill or transportation agreement if the carrier’s rates are dependent upon value and the consignor is afforded an
opportunity to declare a higher value and the consignor is advised of the opportunity. However, such a limitation is not effective with
respect to the carrier’s liability for conversion to its own use.
(c) Reasonable provisions as to the time and manner of presenting claims and commencing actions based on the shipment may be
included in a bill of lading or a transportation agreement.
(5A Del. C. 1953, § 7-309; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
Part 4
Warehouse Receipts and Bills of Lading: General Obligations
§ 7-401. Irregularities in issue of receipt or bill or conduct of issuer.
The obligations imposed by this article on an issuer apply to a document of title even if:
(1) The document does not comply with the requirements of this article or of any other statute, rule, or regulation regarding its
issuance, form, or content;
(2) The issuer violated laws regulating the conduct of its business;
(3) The goods covered by the document were owned by the bailee when the document was issued; or
(4) The person issuing the document is not a warehouse but the document purports to be a warehouse receipt.
(5A Del. C. 1953, § 7-401; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-402. Duplicate document of title; overissue.
A duplicate or any other document of title purporting to cover goods already represented by an outstanding document of the same issuer
does not confer any right in the goods, except as provided in the case of tangible bills of lading in a set of parts, overissue of documents
for fungible goods, substitutes for lost, stolen, or destroyed documents, or substitute documents issued pursuant to § 7-105. The issuer is
liable for damages caused by its overissue or failure to identify a duplicate document by a conspicuous notation.
(5A Del. C. 1953, § 7-402; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-403. Obligation of bailee to deliver; excuse.
(a) A bailee shall deliver the goods to a person entitled under a document of title if the person complies with subsections (b) and (c),
unless and to the extent that the bailee establishes any of the following:
(1) Delivery of the goods to a person whose receipt was rightful as against the claimant;
(2) Damage to or delay, loss, or destruction of the goods for which the bailee is not liable;
(3) Previous sale or other disposition of the goods in lawful enforcement of a lien or on a warehouse’s lawful termination of storage;
(4) The exercise by a seller of its right to stop delivery pursuant to § 2-705 or by a lessor of its right to stop delivery pursuant to
§ 2A-526;
(5) A diversion, reconsignment, or other disposition pursuant to § 7-303;
(6) Release, satisfaction, or any other personal defense against the claimant; or
(7) Any other lawful excuse.
(b) A person claiming goods covered by a document of title shall satisfy the bailee’s lien if the bailee so requests or if the bailee is
prohibited by law from delivering the goods until the charges are paid.
(c) Unless a person claiming the goods is a person against which the document of title does not confer a right under § 7-503(a):
(1) The person claiming under a document shall surrender possession or control of any outstanding negotiable document covering
the goods for cancellation or indication of partial deliveries; and
(2) The bailee shall cancel the document or conspicuously indicate in the document the partial delivery or the bailee is liable to any
person to which the document is duly negotiated.
(5A Del. C. 1953, § 7-403; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-404. No liability for good-faith delivery pursuant to document of title.
A bailee that in good faith has received goods and delivered or otherwise disposed of the goods according to the terms of a document
of title or pursuant to this article is not liable for the goods even if:
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(1) The person from which the bailee received the goods did not have authority to procure the document or to dispose of the goods; or
(2) The person to which the bailee delivered the goods did not have authority to receive the goods.
(5A Del. C. 1953, § 7-404; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
Part 5
Warehouse Receipts and Bills of Lading: Negotiation and Transfer
§ 7-501. Form of negotiation and requirements of due negotiation.
(a) The following rules apply to a negotiable tangible document of title:
(1) If the document’s original terms run to the order of a named person, the document is negotiated by the named person’s indorsement
and delivery. After the named person’s indorsement in blank or to bearer, any person may negotiate the document by delivery alone.
(2) If the document’s original terms run to bearer, it is negotiated by delivery alone.
(3) If the document’s original terms run to the order of a named person and it is delivered to the named person, the effect is the
same as if the document had been negotiated.
(4) Negotiation of the document after it has been indorsed to a named person requires indorsement by the named person and delivery.
(5) A document is duly negotiated if it is negotiated in the manner stated in this subsection to a holder that purchases it in good faith,
without notice of any defense against or claim to it on the part of any person, and for value, unless it is established that the negotiation is
not in the regular course of business or financing or involves receiving the document in settlement or payment of a monetary obligation.
(b) The following rules apply to a negotiable electronic document of title:
(1) If the document’s original terms run to the order of a named person or to bearer, the document is negotiated by delivery of the
document to another person. Indorsement by the named person is not required to negotiate the document.
(2) If the document’s original terms run to the order of a named person and the named person has control of the document, the effect
is the same as if the document had been negotiated.
(3) A document is duly negotiated if it is negotiated in the manner stated in this subsection to a holder that purchases it in good
faith, without notice of any defense against or claim to it on the part of any person, and for value, unless it is established that the
negotiation is not in the regular course of business or financing or involves taking delivery of the document in settlement or payment
of a monetary obligation.
(c) Indorsement of a nonnegotiable document of title neither makes it negotiable nor adds to the transferee’s rights.
(d) The naming in a negotiable bill of lading of a person to be notified of the arrival of the goods does not limit the negotiability of the
bill or constitute notice to a purchaser of the bill of any interest of that person in the goods.
(5A Del. C. 1953, § 7-501; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-502. Rights acquired by due negotiation.
(a) Subject to §§ 7-205 and 7-503, a holder to which a negotiable document of title has been duly negotiated acquires thereby:
(1) Title to the document;
(2) Title to the goods;
(3) All rights accruing under the law of agency or estoppel, including rights to goods delivered to the bailee after the document
was issued; and
(4) The direct obligation of the issuer to hold or deliver the goods according to the terms of the document free of any defense or
claim by the issuer except those arising under the terms of the document or under this article, but in the case of a delivery order, the
bailee’s obligation accrues only upon the bailee’s acceptance of the delivery order and the obligation acquired by the holder is that the
issuer and any indorser will procure the acceptance of the bailee.
(b) Subject to § 7-503, title and rights acquired by due negotiation are not defeated by any stoppage of the goods represented by the
document of title or by surrender of the goods by the bailee and are not impaired even if:
(1) The due negotiation or any prior due negotiation constituted a breach of duty;
(2) Any person has been deprived of possession of a negotiable tangible document or control of a negotiable electronic document
by misrepresentation, fraud, accident, mistake, duress, loss, theft, or conversion; or
(3) A previous sale or other transfer of the goods or document has been made to a third person.
(5A Del. C. 1953, § 7-502; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-503. Document of title to goods defeated in certain cases.
(a) A document of title confers no right in goods against a person that before issuance of the document had a legal interest or a perfected
security interest in the goods and that did not:
(1) Deliver or entrust the goods or any document of title covering the goods to the bailor or the bailor’s nominee with:
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Title 6 - Commerce and Trade
(A) Actual or apparent authority to ship, store, or sell;
(B) Power to obtain delivery under § 7-403; or
(C) Power of disposition under § 2-403, 2A-304(2), 2A-305(2), 9-320, or 9-321(c) or other statute or rule of law; or
(D) Acquiesce in the procurement by the bailor or its nominee of any document.
(b) Title to goods based upon an unaccepted delivery order is subject to the rights of any person to which a negotiable warehouse
receipt or bill of lading covering the goods has been duly negotiated. That title may be defeated under § 7-504 to the same extent as the
rights of the issuer or a transferee from the issuer.
(c) Title to goods based upon a bill of lading issued to a freight forwarder is subject to the rights of any person to which a bill issued
by the freight forwarder is duly negotiated. However, delivery by the carrier in accordance with Part 4 pursuant to its own bill of lading
discharges the carrier’s obligation to deliver.
(5A Del. C. 1953, § 7-503; 55 Del. Laws, c. 349; 72 Del. Laws, c. 401, § 17; 74 Del. Laws, c. 332, § 39.)
§ 7-504. Rights acquired in absence of due negotiation; effect of diversion; stoppage of delivery.
(a) A transferee of a document of title, whether negotiable or nonnegotiable, to which the document has been delivered but not duly
negotiated, acquires the title and rights that its transferor had or had actual authority to convey.
(b) In the case of a transfer of a nonnegotiable document of title, until but not after the bailee receives notice of the transfer, the rights
of the transferee may be defeated:
(1) By those creditors of the transferor which could treat the transfer as void under § 2-402 or 2A-308;
(2) By a buyer from the transferor in ordinary course of business if the bailee has delivered the goods to the buyer or received
notification of the buyer’s rights;
(3) By a lessee from the transferor in ordinary course of business if the bailee has delivered the goods to the lessee or received
notification of the lessee’s rights; or
(4) As against the bailee, by good-faith dealings of the bailee with the transferor.
(c) A diversion or other change of shipping instructions by the consignor in a nonnegotiable bill of lading which causes the bailee not
to deliver the goods to the consignee defeats the consignee’s title to the goods if the goods have been delivered to a buyer in ordinary
course of business or a lessee in ordinary course of business and, in any event, defeats the consignee’s rights against the bailee.
(d) Delivery of the goods pursuant to a nonnegotiable document of title may be stopped by a seller under § 2-705 or a lessor under
§ 2A-526, subject to the requirements of due notification in those sections. A bailee that honors the seller’s or lessor’s instructions is
entitled to be indemnified by the seller or lessor against any resulting loss or expense.
(5A Del. C. 1953, § 7-504; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-505. Indorser not guarantor for other parties.
The indorsement of a tangible document of title issued by a bailee does not make the indorser liable for any default by the bailee or
previous indorsers.
(5A Del. C. 1953, § 7-505; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-506. Delivery without indorsement: right to compel indorsement.
The transferee of a negotiable tangible document of title has a specifically enforceable right to have its transferor supply any necessary
indorsement, but the transfer becomes a negotiation only as of the time the indorsement is supplied.
(5A Del. C. 1953, § 7-506; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-507. Warranties on negotiation or delivery of document of title.
If a person negotiates or delivers a document of title for value, otherwise than as a mere intermediary under Section 7-508, unless
otherwise agreed, the transferor, in addition to any warranty made in selling or leasing the goods, warrants to its immediate purchaser
only that:
(1) The document is genuine;
(2) The transferor does not have knowledge of any fact that would impair the document’s validity or worth; and
(3) The negotiation or delivery is rightful and fully effective with respect to the title to the document and the goods it represents.
(5A Del. C. 1953, § 7-507; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-508. Warranties of collecting bank as to documents of title.
A collecting bank or other intermediary known to be entrusted with documents of title on behalf of another or with collection of a draft
or other claim against delivery of documents warrants by the delivery of the documents only its own good faith and authority even if the
collecting bank or other intermediary has purchased or made advances against the claim or draft to be collected.
(5A Del. C. 1953, § 7-508; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
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§ 7-509. Adequate compliance with commercial contract.
Whether a document of title is adequate to fulfill the obligations of a contract for sale, a contract for lease, or the conditions of a letter
of credit is determined by Article 2, 2A, or 5.
(5A Del. C. 1953, § 7-509; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
Part 6
Warehouse Receipts and Bills of Lading: Miscellaneous Provisions
§ 7-601. Lost, stolen, or destroyed documents of title.
(a) If a document of title is lost, stolen, or destroyed, a court may order delivery of the goods or issuance of a substitute document
and the bailee may without liability to any person comply with the order. If the document was negotiable, a court may not order delivery
of the goods or issuance of a substitute document without the claimant’s posting security unless it finds that any person that may suffer
loss as a result of nonsurrender of possession or control of the document is adequately protected against the loss. If the document was
nonnegotiable, the court may require security. The court may also order payment of the bailee’s reasonable costs and attorney’s fees in
any action under this subsection.
(b) A bailee that, without a court order, delivers goods to a person claiming under a missing negotiable document of title is liable to
any person injured thereby. If the delivery is not in good faith, the bailee is liable for conversion. Delivery in good faith is not conversion
if the claimant posts security with the bailee in an amount at least double the value of the goods at the time of posting to indemnify any
person injured by the delivery which files a notice of claim within one year after the delivery.
(5A Del. C. 1953, § 7-601; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-602. Judicial process against goods covered by negotiable document of title.
Unless a document of title was originally issued upon delivery of the goods by a person that did not have power to dispose of them,
a lien does not attach by virtue of any judicial process to goods in the possession of a bailee for which a negotiable document of title is
outstanding unless possession or control of the document is first surrendered to the bailee or the document’s negotiation is enjoined. The
bailee may not be compelled to deliver the goods pursuant to process until possession or control of the document is surrendered to the
bailee or to the court. A purchaser of the document for value without notice of the process or injunction takes free of the lien imposed
by judicial process.
(5A Del. C. 1953, § 7-602; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
§ 7-603. Conflicting claims; interpleader.
If more than one person claims title to or possession of the goods, the bailee is excused from delivery until the bailee has a reasonable
time to ascertain the validity of the adverse claims or to commence an action for interpleader. The bailee may assert an interpleader either
in defending an action for nondelivery of the goods or by original action.
(5A Del. C. 1953, § 7-603; 55 Del. Laws, c. 349; 74 Del. Laws, c. 332, § 39.)
Part 7
Miscellaneous Provisions
§ 7-701. Applicability.
References in this part to this “act” refer to the legislative enactment by which this part is added to the Uniform Commercial Code.
This act applies to a document of title that is issued or a bailment that arises on or after the effective date of this act. This act does not
apply to a document of title that is issued or a bailment that arises before the effective date of this act even if the document of title or
bailment would be subject to this Act if the document of title had been issued or bailment had arisen on or after the effective date of this
act. This act does not apply to a right of action that has accrued before the effective date of this act.
(74 Del. Laws, c. 332, § 39.)
§ 7-702. Savings clause.
A document of title issued or a bailment that arises before the effective date of this act and the rights, obligations, and interests flowing
from that document or bailment are governed by any statute or other rule amended or repealed by this Act as if amendment or repeal had
not occurred and may be terminated, completed, consummated, or enforced under that statute or other rule.
(74 Del. Laws, c. 332, § 39.)
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Subtitle I
Uniform Commercial Code
Article 8
Investment Securities
Part 1
Short Title and General Matters
§ 8-101. Short title.
This Article may be cited as Uniform Commercial Code—Investment Securities.
(5A Del. C. 1953, § 8-101; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-102. Definitions.
(a) In this Article:
(1) “Adverse claim” means a claim that a claimant has a property interest in a financial asset and that it is a violation of the rights
of the claimant for another person to hold, transfer, or deal with the financial asset.
(2) “Bearer form,” as applied to a certificated security, means a form in which the security is payable to the bearer of the security
certificate according to its terms but not by reason of an endorsement.
(3) “Broker” means a person defined as a broker or dealer under the federal securities laws, but without excluding a bank acting
in that capacity.
(4) “Certificated security” means a security that is represented by a certificate.
(5) “Clearing corporation” means:
(i) a person that is registered as a “clearing agency” under the federal securities laws;
(ii) a federal reserve bank; or
(iii) any other person that provides clearance or settlement services with respect to financial assets that would require it to register as
a clearing agency under the federal securities laws but for an exclusion or exemption from the registration requirement, if its activities
as a clearing corporation, including promulgation of rules, are subject to regulation by a federal or state governmental authority.
(6) “Communicate” means to:
(i) send a signed writing; or
(ii) transmit information by any mechanism agreed upon by the persons transmitting and receiving the information.
(7) “Entitlement holder” means a person identified in the records of a securities intermediary as the person having a security
entitlement against the securities intermediary. If a person acquires a security entitlement by virtue of Section 8-501(b)(2) or (3), that
person is the entitlement holder.
(8) “Entitlement order” means a notification communicated to a securities intermediary directing transfer or redemption of a financial
asset to which the entitlement holder has a security entitlement.
(9) “Financial asset,” except as otherwise provided in Section 8-103, means:
(i) a security;
(ii) an obligation of a person or a share, participation, or other interest in a person or in property or an enterprise of a person,
which is, or is of a type, dealt in or traded on financial markets, or which is recognized in any area in which it is issued or dealt
in as a medium for investment; or
(iii) any property that is held by a securities intermediary for another person in a securities account if the securities intermediary
has expressly agreed with the other person that the property is to be treated as a financial asset under this Article.
As context requires, the term means either the interest itself or the means by which a person’s claim to it is evidenced, including
a certificated or uncertificated security, a security certificate, or a security entitlement.
(10) [Reserved.]
(11) “Endorsement” means a signature that alone or accompanied by other words is made on a security certificate in registered
form or on a separate document for the purpose of assigning, transferring, or redeeming the security or granting a power to assign,
transfer, or redeem it.
(12) “Instruction” means a notification communicated to the issuer of an uncertificated security which directs that the transfer of the
security be registered or that the security be redeemed.
(13) “Registered form,” as applied to a certificated security, means a form in which:
(i) the security certificate specifies a person entitled to the security; and
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Title 6 - Commerce and Trade
(ii) a transfer of the security may be registered upon books maintained for that purpose by or on behalf of the issuer, or the security
certificate so states.
(14) “Securities intermediary” means:
(i) a clearing corporation; or
(ii) a person, including a bank or broker, that in the ordinary course of its business maintains securities accounts for others and
is acting in that capacity.
(15) “Security,” except as otherwise provided in Section 8-103, means an obligation of an issuer or a share, participation, or other
interest in an issuer or in property or an enterprise of an issuer:
(i) which is represented by a security certificate in bearer or registered form, or the transfer of which may be registered upon books
maintained for that purpose by or on behalf of the issuer;
(ii) which is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests, or obligations;
and
(iii) which:
(A) is, or is of a type, dealt in or traded on securities exchanges or securities markets; or
(B) is a medium for investment and by its terms expressly provides that it is a security governed by this Article.
(16) “Security certificate” means a certificate representing a security.
(17) “Security entitlement” means the rights and property interest of an entitlement holder with respect to a financial asset specified
in Part 5.
(18) “Uncertificated security” means a security that is not represented by a certificate.
(b) Other definitions applying to this Article and the sections in which they appear are:
Appropriate
person
Section 8–107
Control
Section 8–106
Delivery
Section 8–301
Investment
company
security
Section 8–103
Issuer
Section 8–201
Overissue
Section 8–210
Protected
purchaser
Section 8–303
Securities
account
Section 8–501
(c) In addition, Article 1 contains general definitions and principles of construction and interpretation applicable throughout this Article.
(d) The characterization of a person, business, or transaction for purposes of this Article does not determine the characterization of the
person, business, or transaction for purposes of any other law, regulation, or rule.
(5A Del. C. 1953, § 8-102; 55 Del. Laws, c. 349; 58 Del. Laws, c. 476; 64 Del. Laws, c. 152, § 6; 67 Del. Laws, c. 330, § 3; 68
Del. Laws, c. 296, §§ 1-3; 71 Del. Laws, c. 75, § 1; 74 Del. Laws, c. 332, § 40.)
§ 8-103. Rules for determining whether certain obligations and interests are securities or financial assets.
(a) A share or similar equity interest issued by a corporation, business trust, statutory trust, joint stock company, or similar entity is
a security.
(b) An “investment company security” is a security. “Investment company security” means a share or similar equity interest issued by
an entity that is registered as an investment company under the federal investment company laws, an interest in a unit investment trust
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Title 6 - Commerce and Trade
that is so registered, or a face-amount certificate issued by a face-amount certificate company that is so registered. Investment company
security does not include an insurance policy or endowment policy or annuity contract issued by an insurance company.
(c) An interest in a partnership or limited liability company is not a security unless it is dealt in or traded on securities exchanges or
in securities markets, its terms expressly provide that it is a security governed by this Article, or it is an investment company security.
However, an interest in a partnership or limited liability company is a financial asset if it is held in a securities account.
(d) A writing that is a security certificate is governed by this Article and not by Article 3, even though it also meets the requirements
of that Article. However, a negotiable instrument governed by Article 3 is a financial asset if it is held in a securities account.
(e) An option or similar obligation issued by a clearing corporation to its participants is not a security, but is a financial asset.
(f) A commodity contract, as defined in Section 9-102(a)(15), is not a security or a financial asset.
(g) A document of title is not a financial asset unless Section 8-102(a)(9)(iii) applies.
(71 Del. Laws, c. 75, § 1; 72 Del. Laws, c. 401, § 18; 73 Del. Laws, c. 329, § 6; 74 Del. Laws, c. 332, § 41.)
§ 8-104. Acquisition of security or financial asset or interest therein.
(a) A person acquires a security or an interest therein, under this Article, if:
(1) the person is a purchaser to whom a security is delivered pursuant to Section 8-301; or
(2) the person acquires a security entitlement to the security pursuant to Section 8-501.
(b) A person acquires a financial asset, other than a security, or an interest therein, under this Article, if the person acquires a security
entitlement to the financial asset.
(c) A person who acquires a security entitlement to a security or other financial asset has the rights specified in Part 5, but is a purchaser
of any security, security entitlement, or other financial asset held by the securities intermediary only to the extent provided in Section
8-503.
(d) Unless the context shows that a different meaning is intended, a person who is required by other law, regulation, rule, or agreement
to transfer, deliver, present, surrender, exchange, or otherwise put in the possession of another person a security or financial asset satisfies
that requirement by causing the other person to acquire an interest in the security or financial asset pursuant to subsection (a) or (b).
(71 Del. Laws, c. 75, § 1.)
§ 8-105. Notice of adverse claim.
(a) A person has notice of an adverse claim if:
(1) the person knows of the adverse claim;
(2) the person is aware of facts sufficient to indicate that there is a significant probability that the adverse claim exists and deliberately
avoids information that would establish the existence of the adverse claim; or
(3) the person has a duty, imposed by statute or regulation, to investigate whether an adverse claim exists, and the investigation so
required would establish the existence of the adverse claim.
(b) Having knowledge that a financial asset or interest therein is or has been transferred by a representative imposes no duty of inquiry
into the rightfulness of a transaction and is not notice of an adverse claim. However, a person who knows that a representative has
transferred a financial asset or interest therein in a transaction that is, or whose proceeds are being used, for the individual benefit of the
representative or otherwise in breach of duty has notice of an adverse claim.
(c) An act or event that creates a right to immediate performance of the principal obligation represented by a security certificate or sets
a date on or after which the certificate is to be presented or surrendered for redemption or exchange does not itself constitute notice of
an adverse claim except in the case of a transfer more than:
(1) one year after a date set for presentment or surrender for redemption or exchange; or
(2) six months after a date set for payment of money against presentation or surrender of the certificate, if money was available
for payment on that date.
(d) A purchaser of a certificated security has notice of an adverse claim if the security certificate:
(1) whether in bearer or registered form, has been endorsed “for collection” or “for surrender” or for some other purpose not involving
transfer; or
(2) is in bearer form and has on it an unambiguous statement that it is the property of a person other than the transferor, but the mere
writing of a name on the certificate is not such a statement.
(e) Filing of a financing statement under Article 9 is not notice of an adverse claim to a financial asset.
(5A Del. C. 1953, § 8-304; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-106. Control.
(a) A purchaser has “control” of a certificated security in bearer form if the certificated security is delivered to the purchaser.
(b) A purchaser has “control” of a certificated security in registered form if the certificated security is delivered to the purchaser, and:
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(1) the certificate is endorsed to the purchaser or in blank by an effective endorsement; or
(2) the certificate is registered in the name of the purchaser, upon original issue or registration of transfer by the issuer.
(c) A purchaser has “control” of an uncertificated security if:
(1) the uncertificated security is delivered to the purchaser;
(2) the issuer has agreed that it will comply with instructions originated by the purchaser without further consent by the registered
owner; or
(3) the issuer, the registered owner, and the purchaser have authenticated a record that (i) is conspicuously denominated a control
agreement, (ii) identifies the uncertificated security in which the purchaser claims an interest, and (iii) contains 1 or more provisions
addressing instructions relating to the uncertificated security or the right to originate instructions relating to the uncertificated security.
(d) A purchaser has “control” of a security entitlement if:
(1) the purchaser becomes the entitlement holder;
(2) the securities intermediary has agreed that it will comply with entitlement orders originated by the purchaser without further
consent by the entitlement holder;
(3) another person has control of the security entitlement on behalf of the purchaser or, having previously acquired control of the
security entitlement, acknowledges that it has control on behalf of the purchaser; or
(4) the securities intermediary, the entitlement holder, and the purchaser have authenticated a record that (i) is conspicuously
denominated a control agreement, (ii) identifies the security entitlement in which the purchaser claims an interest, and (iii) contains
one or more provisions addressing entitlement orders relating to the security entitlement or the right to originate entitlement orders
relating to the security entitlement.
(e) If an interest in a security entitlement is granted by the entitlement holder to the entitlement holder’s own securities intermediary,
the securities intermediary has control.
(f) A purchaser who has satisfied the requirements of subsection (c) or (d) has control, even if the registered owner in the case of
subsection (c) or the entitlement holder in the case of subsection (d) retains the right to make substitutions for the uncertificated security
or security entitlement, to originate instructions or entitlement orders to the issuer or securities intermediary, or otherwise to deal with
the uncertificated security or security entitlement.
(g) An issuer or a securities intermediary may not enter into an agreement of the kind described in subsection (c)(2), (c)(3), (d)(2), or
(d)(4) without the consent of the registered owner or entitlement holder, but an issuer or a securities intermediary is not required to enter
into such an agreement even though the registered owner or entitlement holder so directs. An issuer or securities intermediary that has
entered into such an agreement is not required to confirm the existence of the agreement to another party unless requested to do so by
the registered owner or entitlement holder.
(h) Under subsection (c)(2), (c)(3), (d)(2), or (d)(4), authentication of a record does not impose upon the issuer or securities intermediary
any duty not expressly agreed to by the issuer or securities intermediary in the record.
(i) A purchaser has “control” under subsection (c)(2), (c)(3), (d)(2), or (d)(4) even if any duty of the issuer or the securities intermediary
to comply with instructions or entitlement orders originated by the purchaser is subject to any condition or conditions (other than further
consent by the registered owner or the entitlement holder).
(71 Del. Laws, c. 75, § 1; 72 Del. Laws, c. 401, §§ 19, 20; 76 Del. Laws, c. 92, §§ 4-7.)
§ 8-107. Whether endorsement, instruction, or entitlement order is effective.
(a) “Appropriate person” means:
(1) with respect to an endorsement, the person specified by a security certificate or by an effective special endorsement to be entitled
to the security;
(2) with respect to an instruction, the registered owner of an uncertificated security;
(3) with respect to an entitlement order, the entitlement holder;
(4) if the person designated in paragraph (1), (2), or (3) is deceased, the designated person’s successor taking under other law or the
designated person’s personal representative acting for the estate of the decedent; or
(5) if the person designated in paragraph (1), (2), or (3) lacks capacity, the designated person’s guardian, conservator, or other similar
representative who has power under other law to transfer the security or financial asset.
(b) An endorsement, instruction, or entitlement order is effective if:
(1) it is made by the appropriate person;
(2) it is made by a person who has power under the law of agency to transfer the security or financial asset on behalf of the appropriate
person, including, in the case of an instruction or entitlement order, a person who has control under Section 8-106(c)(2) or (d)(2); or
(3) the appropriate person has ratified it or is otherwise precluded from asserting its ineffectiveness.
(c) An endorsement, instruction, or entitlement order made by a representative is effective even if:
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(1) the representative has failed to comply with a controlling instrument or with the law of the State having jurisdiction of the
representative relationship, including any law requiring the representative to obtain court approval of the transaction; or
(2) the representative’s action in making the endorsement, instruction, or entitlement order or using the proceeds of the transaction
is otherwise a breach of duty.
(d) If a security is registered in the name of or specially endorsed to a person described as a representative, or if a securities account is
maintained in the name of a person described as a representative, an endorsement, instruction, or entitlement order made by the person
is effective even though the person is no longer serving in the described capacity.
(e) Effectiveness of an endorsement, instruction, or entitlement order is determined as of the date the endorsement, instruction, or
entitlement order is made, and an endorsement, instruction, or entitlement order does not become ineffective by reason of any later change
of circumstances.
(71 Del. Laws, c. 75, § 1.)
§ 8-108. Warranties in direct holding.
(a) A person who transfers a certificated security to a purchaser for value warrants to the purchaser, and an endorser, if the transfer is
by endorsement, warrants to any subsequent purchaser, that:
(1) the certificate is genuine and has not been materially altered;
(2) the transferor or endorser does not know of any fact that might impair the validity of the security;
(3) there is no adverse claim to the security;
(4) the transfer does not violate any restriction on transfer;
(5) if the transfer is by endorsement, the endorsement is made by an appropriate person, or if the endorsement is by an agent, the
agent has actual authority to act on behalf of the appropriate person; and
(6) the transfer is otherwise effective and rightful.
(b) A person who originates an instruction for registration of transfer of an uncertificated security to a purchaser for value warrants
to the purchaser that:
(1) the instruction is made by an appropriate person, or if the instruction is by an agent, the agent has actual authority to act on
behalf of the appropriate person;
(2) the security is valid;
(3) there is no adverse claim to the security; and
(4) at the time the instruction is presented to the issuer:
(i) the purchaser will be entitled to the registration of transfer;
(ii) the transfer will be registered by the issuer free from all liens, security interests, restrictions, and claims other than those
specified in the instruction;
(iii) the transfer will not violate any restriction on transfer; and
(iv) the requested transfer will otherwise be effective and rightful.
(c) A person who transfers an uncertificated security to a purchaser for value and does not originate an instruction in connection with
the transfer warrants that:
(1) the uncertificated security is valid;
(2) there is no adverse claim to the security;
(3) the transfer does not violate any restriction on transfer; and
(4) the transfer is otherwise effective and rightful.
(d) A person who endorses a security certificate warrants to the issuer that:
(1) there is no adverse claim to the security; and
(2) the endorsement is effective.
(e) A person who originates an instruction for registration of transfer of an uncertificated security warrants to the issuer that:
(1) the instruction is effective; and
(2) at the time the instruction is presented to the issuer the purchaser will be entitled to the registration of transfer.
(f) A person who presents a certificated security for registration of transfer or for payment or exchange warrants to the issuer that
the person is entitled to the registration, payment, or exchange, but a purchaser for value and without notice of adverse claims to whom
transfer is registered warrants only that the person has no knowledge of any unauthorized signature in a necessary endorsement.
(g) If a person acts as agent of another in delivering a certificated security to a purchaser, the identity of the principal was known to
the person to whom the certificate was delivered, and the certificate delivered by the agent was received by the agent from the principal
or received by the agent from another person at the direction of the principal, the person delivering the security certificate warrants only
that the delivering person has authority to act for the principal and does not know of any adverse claim to the certificated security.
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(h) A secured party who redelivers a security certificate received, or after payment and on order of the debtor delivers the security
certificate to another person, makes only the warranties of an agent under subsection (g).
(i) Except as otherwise provided in subsection (g), a broker acting for a customer makes to the issuer and a purchaser the warranties
provided in subsections (a) through (f). A broker that delivers a security certificate to its customer, or causes its customer to be registered
as the owner of an uncertificated security, makes to the customer the warranties provided in subsection (a) or (b), and has the rights and
privileges of a purchaser under this section. The warranties of and in favor of the broker acting as an agent are in addition to applicable
warranties given by and in favor of the customer.
(5A Del. C. 1953, § 8-306; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-109. Warranties in indirect holding.
(a) A person who originates an entitlement order to a securities intermediary warrants to the securities intermediary that:
(1) the entitlement order is made by an appropriate person, or if the entitlement order is by an agent, the agent has actual authority
to act on behalf of the appropriate person; and
(2) there is no adverse claim to the security entitlement.
(b) A person who delivers a security certificate to a securities intermediary for credit to a securities account or originates an instruction
with respect to an uncertificated security directing that the uncertificated security be credited to a securities account makes to the securities
intermediary the warranties specified in Section 8-108(a) or (b).
(c) If a securities intermediary delivers a security certificate to its entitlement holder or causes its entitlement holder to be registered
as the owner of an uncertificated security, the securities intermediary makes to the entitlement holder the warranties specified in Section
8-108(a) or (b).
(5A Del. C. 1953, § 8-306; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-110. Applicability; choice of law.
(a) The local law of the issuer’s jurisdiction, as specified in subsection (d), governs:
(1) the validity of a security;
(2) the rights and duties of the issuer with respect to registration of transfer;
(3) the effectiveness of registration of transfer by the issuer;
(4) whether the issuer owes any duties to an adverse claimant to a security;
(5) whether an adverse claim can be asserted against a person to whom transfer of a certificated or uncertificated security is registered
or a person who obtains control of an uncertificated security; and
(6) the effectiveness of a restriction on transfer of a security or an interest therein.
(b) The local law of the securities intermediary’s jurisdiction, as specified in subsection (e), governs:
(1) acquisition of a security entitlement from the securities intermediary;
(2) the rights and duties of the securities intermediary and entitlement holder arising out of a security entitlement;
(3) whether the securities intermediary owes any duties to an adverse claimant to a security entitlement; and
(4) whether an adverse claim can be asserted against a person who acquires a security entitlement from the securities intermediary
or a person who purchases a security entitlement or interest therein from an entitlement holder.
(c) The local law of the jurisdiction in which a security certificate is located at the time of delivery governs whether an adverse claim
can be asserted against a person to whom the security certificate is delivered.
(d) “Issuer’s jurisdiction” means the jurisdiction under which the issuer of the security is organized or, if permitted by the law of another
jurisdiction, the law of this State.
(e) The following rules determine a “securities intermediary’s jurisdiction” for purposes of this section:
(1) If an agreement between the securities intermediary and its entitlement holder governing the securities account expressly provides
that a particular jurisdiction is the securities intermediary’s jurisdiction for purposes of this part, this Article, or this subtitle, that
jurisdiction is the securities intermediary’s jurisdiction.
(2) If paragraph (1) does not apply and an agreement between the securities intermediary and its entitlement holder governing the
securities account expressly provides that the agreement is governed by the law of a particular jurisdiction, that jurisdiction is the
securities intermediary’s jurisdiction.
(3) If neither paragraph (1) nor paragraph (2) applies and an agreement between the securities intermediary and its entitlement holder
governing the securities account expressly provides that the securities account is maintained at an office in a particular jurisdiction,
that jurisdiction is the securities intermediary’s jurisdiction.
(4) If none of the preceding paragraphs applies, the securities intermediary’s jurisdiction is the jurisdiction in which the office
identified in an account statement as the office serving the entitlement holder’s account is located.
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(5) If none of the preceding paragraphs applies, the securities intermediary’s jurisdiction is the jurisdiction in which the chief
executive office of the securities intermediary is located.
(f) A securities intermediary’s jurisdiction is not determined by the physical location of certificates representing financial assets, or by
the jurisdiction in which is organized the issuer of the financial asset with respect to which an entitlement holder has a security entitlement,
or by the location of facilities for data processing or other record keeping concerning the account.
(5A Del. C. 1953, § 8-106; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1; 72 Del. Laws, c. 401, § 21.)
§ 8-111. Clearing corporation rules.
A rule adopted by a clearing corporation governing rights and obligations among the clearing corporation and its participants in the
clearing corporation is effective even if the rule conflicts with this subtitle and affects another party who does not consent to the rule.
(71 Del. Laws, c. 75, § 1.)
§ 8-112. Creditor’s legal process.
(a) Except to the extent otherwise provided or permitted by §§ 169 and 324 of Title 8, §§ 365, 366 and Chapter 35 of Title 10, and
subsection (d) hereof, the interest of a debtor in a certificated security may be reached by a creditor only by actual seizure of the security
certificate by the officer making the attachment or levy. However, a certificated security for which the certificate has been surrendered
to the issuer may be reached by a creditor by legal process upon the issuer.
(b) Except to the extent otherwise provided or permitted by §§ 169 and 324 of Title 8, §§ 365, 366 and Chapter 35 of Title 10, and
subsection (d) hereof, the interest of a debtor in an uncertificated security may be reached by a creditor only by legal process upon the
issuer at its chief executive office in the United States.
(c) The interest of a debtor in a security entitlement may be reached by a creditor only by legal process upon the securities intermediary
with whom the debtor’s securities account is maintained, except as otherwise provided in subsection (d).
(d) The interest of a debtor in a certificated security for which the certificate is in the possession of a secured party, or in an uncertificated
security registered in the name of a secured party, or a security entitlement maintained in the name of a secured party, may be reached
by a creditor by legal process upon the secured party.
(e) A creditor whose debtor is the owner of a certificated security, uncertificated security, or security entitlement is entitled to aid
from a court of competent jurisdiction, by injunction or otherwise, in reaching the certificated security, uncertificated security, or security
entitlement or in satisfying the claim by means allowed at law or in equity in regard to property that cannot readily be reached by other
legal process.
(5A Del. C. 1953, § 8-317; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-113. Statute of frauds inapplicable.
A contract or modification of a contract for the sale or purchase of a security is enforceable whether or not there is a writing signed or
record authenticated by a party against whom enforcement is sought, even if the contract or modification is not capable of performance
within one year of its making.
(5A Del. C. 1953, § 8-319; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-114. Evidentiary rules concerning certificated securities.
The following rules apply in an action on a certificated security against the issuer:
(1) Unless specifically denied in the pleadings, each signature on a security certificate or in a necessary endorsement is admitted.
(2) If the effectiveness of a signature is put in issue, the burden of establishing effectiveness is on the party claiming under the
signature, but the signature is presumed to be genuine or authorized.
(3) If signatures on a security certificate are admitted or established, production of the certificate entitles a holder to recover on it
unless the defendant establishes a defense or a defect going to the validity of the security.
(4) If it is shown that a defense or defect exists, the plaintiff has the burden of establishing that the plaintiff or some person under
whom the plaintiff claims is a person against whom the defense or defect cannot be asserted.
(71 Del. Laws, c. 75, § 1.)
§ 8-115. Securities intermediary and others not liable to adverse claimant.
A securities intermediary that has transferred a financial asset pursuant to an effective entitlement order, or a broker or other agent or
bailee that has dealt with a financial asset at the direction of its customer or principal, is not liable to a person having an adverse claim
to the financial asset, unless the securities intermediary, or broker or other agent or bailee:
(1) took the action after it had been served with an injunction, restraining order, or other legal process enjoining it from doing so,
issued by a court of competent jurisdiction, and had a reasonable opportunity to act on the injunction, restraining order, or other legal
process; or
(2) acted in collusion with the wrongdoer in violating the rights of the adverse claimant; or
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(3) in the case of a security certificate that has been stolen, acted with notice of the adverse claim.
(71 Del. Laws, c. 75, § 1.)
§ 8-116. Securities intermediary as purchaser for value.
A securities intermediary that receives a financial asset and establishes a security entitlement to the financial asset in favor of an
entitlement holder is a purchaser for value of the financial asset. A securities intermediary that acquires a security entitlement to a financial
asset from another securities intermediary acquires the security entitlement for value if the securities intermediary acquiring the security
entitlement establishes a security entitlement to the financial asset in favor of an entitlement holder.
(71 Del. Laws, c. 75, § 1.)
Part 2
Issue and Issuer
§ 8-201. Issuer.
(a) With respect to an obligation on or a defense to a security, an “issuer” includes a person that:
(1) places or authorizes the placing of its name on a security certificate, other than as authenticating trustee, registrar, transfer agent,
or the like, to evidence a share, participation, or other interest in its property or in an enterprise, or to evidence its duty to perform an
obligation represented by the certificate;
(2) creates a share, participation, or other interest in its property or in an enterprise, or undertakes an obligation, that is an uncertificated
security;
(3) directly or indirectly creates a fractional interest in its rights or property, if the fractional interest is represented by a security
certificate; or
(4) becomes responsible for, or in place of, another person described as an issuer in this section.
(b) With respect to an obligation on or defense to a security, a guarantor is an issuer to the extent of its guaranty, whether or not its
obligation is noted on a security certificate.
(c) With respect to a registration of a transfer, issuer means a person on whose behalf transfer books are maintained.
(5A Del. C. 1953, § 8-201; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-202. Issuer’s responsibility and defenses; notice of defect or defense.
(a) Even against a purchaser for value and without notice, the terms of a certificated security include terms stated on the certificate and
terms made part of the security by reference on the certificate to another instrument, indenture, or document or to a constitution, statute,
ordinance, rule, regulation, order, or the like, to the extent the terms referred to do not conflict with terms stated on the certificate. A
reference under this subsection does not of itself charge a purchaser for value with notice of a defect going to the validity of the security,
even if the certificate expressly states that a person accepting it admits notice. The terms of an uncertificated security include those stated
in any instrument, indenture, or document or in a constitution, statute, ordinance, rule, regulation, order, or the like, pursuant to which
the security is issued.
(b) The following rules apply if an issuer asserts that a security is not valid:
(1) A security other than one issued by a government or governmental subdivision, agency, or instrumentality, even though issued
with a defect going to its validity, is valid in the hands of a purchaser for value and without notice of the particular defect unless the
defect involves a violation of a constitutional provision. In that case, the security is valid in the hands of a purchaser for value and
without notice of the defect, other than one who takes by original issue.
(2) Paragraph (1) applies to an issuer that is a government or governmental subdivision, agency, or instrumentality only if there has
been substantial compliance with the legal requirements governing the issue or the issuer has received a substantial consideration for
the issue as a whole or for the particular security and a stated purpose of the issue is one for which the issuer has power to borrow
money or issue the security.
(c) Except as otherwise provided in Section 8-205, lack of genuineness of a certificated security is a complete defense, even against
a purchaser for value and without notice.
(d) All other defenses of the issuer of a security, including nondelivery and conditional delivery of a certificated security, are ineffective
against a purchaser for value who has taken the certificated security without notice of the particular defense.
(e) This section does not affect the right of a party to cancel a contract for a security “when, as and if issued” or “when distributed”
in the event of a material change in the character of the security that is the subject of the contract or in the plan or arrangement pursuant
to which the security is to be issued or distributed.
(f) If a security is held by a securities intermediary against whom an entitlement holder has a security entitlement with respect to the
security, the issuer may not assert any defense that the issuer could not assert if the entitlement holder held the security directly.
(5A Del. C. 1953, § 8-202; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
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§ 8-203. Staleness as notice of defect or defense.
After an act or event, other than a call that has been revoked, creating a right to immediate performance of the principal obligation
represented by a certificated security or setting a date on or after which the security is to be presented or surrendered for redemption or
exchange, a purchaser is charged with notice of any defect in its issue or defense of the issuer, if the act or event:
(1) requires the payment of money, the delivery of a certificated security, the registration of transfer of an uncertificated security, or
any of them on presentation or surrender of the security certificate, the money or security is available on the date set for payment or
exchange, and the purchaser takes the security more than one year after that date; or
(2) is not covered by paragraph (1) and the purchaser takes the security more than two years after the date set for surrender or
presentation or the date on which performance became due.
(5A Del. C. 1953, § 8-203; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-204. Effect of issuer’s restriction on transfer.
A restriction on transfer of a security imposed by the issuer, even if otherwise lawful, is ineffective against a person without knowledge
of the restriction unless:
(1) the security is certificated and the restriction is noted conspicuously on the security certificate; or
(2) the security is uncertificated and the registered owner has been notified of the restriction.
(5A Del. C. 1953, § 8-204; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-205. Effect of unauthorized signature on certificated security.
An unauthorized signature placed on a security certificate before or in the course of issue is ineffective, but the signature is effective
in favor of a purchaser for value of the certificated security if the purchaser is without notice of the lack of authority and the signing
has been done by:
(1) an authenticating trustee, registrar, transfer agent, or other person entrusted by the issuer with the signing of the security certificate
or of similar security certificates, or the immediate preparation for signing of any of them; or
(2) an employee of the issuer, or of any of the persons listed in paragraph (1), entrusted with responsible handling of the security
certificate.
(5A Del. C. 1953, § 8-205; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-206. Completion or alteration of certificated security.
(a) If a security certificate contains the signatures necessary to its issue or transfer but is incomplete in any other respect:
(1) any person may complete it by filling in the blanks as authorized; and
(2) even if the blanks are incorrectly filled in, the security certificate as completed is enforceable by a purchaser who took it for
value and without notice of the incorrectness.
(b) A complete security certificate that has been improperly altered, even if fraudulently, remains enforceable, but only according to
its original terms.
(5A Del. C. 1953, § 8-206; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-207. Rights and duties of issuer with respect to registered owners.
(a) Before due presentment for registration of transfer of a certificated security in registered form or of an instruction requesting
registration of transfer of an uncertificated security, the issuer or indenture trustee may treat the registered owner as the person exclusively
entitled to vote, receive notifications, and otherwise exercise all the rights and powers of an owner.
(b) This Article does not affect the liability of the registered owner of a security for a call, assessment, or the like.
(5A Del. C. 1953, § 8-207; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-208. Effect of signature of authenticating trustee, registrar, or transfer agent.
(a) A person signing a security certificate as authenticating trustee, registrar, transfer agent, or the like, warrants to a purchaser for
value of the certificated security, if the purchaser is without notice of a particular defect, that:
(1) the certificate is genuine;
(2) the person’s own participation in the issue of the security is within the person’s capacity and within the scope of the authority
received by the person from the issuer; and
(3) the person has reasonable grounds to believe that the certificated security is in the form and within the amount the issuer is
authorized to issue.
(b) Unless otherwise agreed, a person signing under subsection (a) does not assume responsibility for the validity of the security in
other respects.
(5A Del. C. 1953, § 8-208; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
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§ 8-209. Issuer’s lien.
A lien in favor of an issuer upon a certificated security is valid against a purchaser only if the right of the issuer to the lien is noted
conspicuously on the security certificate.
(5A Del. C. 1953, § 8-103; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-210. Overissue.
(a) In this section, “overissue” means the issue of securities in excess of the amount the issuer has corporate power to issue, but an
overissue does not occur if appropriate action has cured the overissue.
(b) Except as otherwise provided in subsections (c) and (d), the provisions of this Article which validate a security or compel its issue
or reissue do not apply to the extent that validation, issue, or reissue would result in overissue.
(c) If an identical security not constituting an overissue is reasonably available for purchase, a person entitled to issue or validation
may compel the issuer to purchase the security and deliver it if certificated or register its transfer if uncertificated, against surrender of
any security certificate the person holds.
(d) If a security is not reasonably available for purchase, a person entitled to issue or validation may recover from the issuer the price
the person or the last purchaser for value paid for it with interest from the date of the person’s demand.
(71 Del. Laws, c. 75, § 1.)
Part 3
Transfer of Certificated and Uncertificated Securities
§ 8-301. Delivery.
(a) Delivery of a certificated security to a purchaser occurs when:
(1) the purchaser acquires possession of the security certificate;
(2) another person, other than a securities intermediary, either acquires possession of the security certificate on behalf of the purchaser
or, having previously acquired possession of the certificate, acknowledges that it holds for the purchaser; or
(3) a securities intermediary acting on behalf of the purchaser acquires possession of the security certificate, only if the certificate is
in registered form and is (i) registered in the name of the purchaser, (ii) payable to the order of the purchaser, or (iii) specially indorsed
to the purchaser by an effective indorsement and has not been indorsed to the securities intermediary or in blank.
(b) Delivery of an uncertificated security to a purchaser occurs when:
(1) the issuer registers the purchaser as the registered owner, upon original issue or registration of transfer; or
(2) another person, other than a securities intermediary, either becomes the registered owner of the uncertificated security on behalf
of the purchaser or, having previously become the registered owner, acknowledges that it holds for the purchaser.
(5A Del. C. 1953, § 8-313; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1; 72 Del. Laws, c. 401, § 22.)
§ 8-302. Rights of purchaser.
(a) Except as otherwise provided in subsections (b) and (c), a purchaser of a certificated or uncertificated security acquires all rights
in the security that the transferor had or had power to transfer.
(b) A purchaser of a limited interest acquires rights only to the extent of the interest purchased.
(c) A purchaser of a certificated security who as a previous holder had notice of an adverse claim does not improve its position by
taking from a protected purchaser.
(5A Del. C. 1953, § 8-301; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1; 72 Del. Laws, c. 401, § 23;
74 Del. Laws, c. 332, § 42.)
§ 8-303. Protected purchaser.
(a) “Protected purchaser” means a purchaser of a certificated or uncertificated security, or of an interest therein, who:
(1) gives value;
(2) does not have notice of any adverse claim to the security; and
(3) obtains control of the certificated or uncertificated security.
(b) In addition to acquiring the rights of a purchaser, a protected purchaser also acquires its interest in the security free of any adverse
claim.
(5A Del. C. 1953, § 8-302; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-304. Endorsement.
(a) An endorsement may be in blank or special. An endorsement in blank includes an endorsement to bearer. A special endorsement
specifies to whom a security is to be transferred or who has power to transfer it. A holder may convert a blank endorsement to a special
endorsement.
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(b) An endorsement purporting to be only of part of a security certificate representing units intended by the issuer to be separately
transferable is effective to the extent of the endorsement.
(c) An endorsement, whether special or in blank, does not constitute a transfer until delivery of the certificate on which it appears or,
if the endorsement is on a separate document, until delivery of both the document and the certificate.
(d) If a security certificate in registered form has been delivered to a purchaser without a necessary endorsement, the purchaser may
become a protected purchaser only when the endorsement is supplied. However, against a transferor, a transfer is complete upon delivery
and the purchaser has a specifically enforceable right to have any necessary endorsement supplied.
(e) An endorsement of a security certificate in bearer form may give notice of an adverse claim to the certificate, but it does not
otherwise affect a right to registration that the holder possesses.
(f) Unless otherwise agreed, a person making an endorsement assumes only the obligations provided in Section 8-108 and not an
obligation that the security will be honored by the issuer.
(5A Del. C. 1953, § 8-308; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-305. Instruction.
(a) If an instruction has been originated by an appropriate person but is incomplete in any other respect, any person may complete it as
authorized and the issuer may rely on it as completed, even though it has been completed incorrectly.
(b) Unless otherwise agreed, a person initiating an instruction assumes only the obligations imposed by Section 8-108 and not an
obligation that the security will be honored by the issuer.
(5A Del. C. 1953, § 8-308; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-306. Effect of guaranteeing signature, endorsement, or instruction.
(a) A person who guarantees a signature of an endorser of a security certificate warrants that at the time of signing:
(1) the signature was genuine;
(2) the signer was an appropriate person to endorse, or if the signature is by an agent, the agent had actual authority to act on behalf
of the appropriate person; and
(3) the signer had legal capacity to sign.
(b) A person who guarantees a signature of the originator of an instruction warrants that at the time of signing:
(1) the signature was genuine;
(2) the signer was an appropriate person to originate the instruction, or if the signature is by an agent, the agent had actual authority
to act on behalf of the appropriate person, if the person specified in the instruction as the registered owner was, in fact, the registered
owner, as to which fact the signature guarantor does not make a warranty; and
(3) the signer had legal capacity to sign.
(c) A person who specially guarantees the signature of an originator of an instruction makes the warranties of a signature guarantor
under subsection (b) and also warrants that at the time the instruction is presented to the issuer:
(1) the person specified in the instruction as the registered owner of the uncertificated security will be the registered owner; and
(2) the transfer of the uncertificated security requested in the instruction will be registered by the issuer free from all liens, security
interests, restrictions, and claims other than those specified in the instruction.
(d) A guarantor under subsections (a) and (b) or a special guarantor under subsection (c) does not otherwise warrant the rightfulness
of the transfer.
(e) A person who guarantees an endorsement of a security certificate makes the warranties of a signature guarantor under subsection
(a) and also warrants the rightfulness of the transfer in all respects.
(f) A person who guarantees an instruction requesting the transfer of an uncertificated security makes the warranties of a special
signature guarantor under subsection (c) and also warrants the rightfulness of the transfer in all respects.
(g) An issuer may not require a special guaranty of signature, a guaranty of endorsement, or a guaranty of instruction as a condition
to registration of transfer.
(h) The warranties under this section are made to a person taking or dealing with the security in reliance on the guaranty, and
the guarantor is liable to the person for loss resulting from their breach. An endorser or originator of an instruction whose signature,
endorsement, or instruction has been guaranteed is liable to a guarantor for any loss suffered by the guarantor as a result of breach of
the warranties of the guarantor.
(5A Del. C. 1953, § 8-312; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-307. Purchaser’s right to requisites for registration of transfer.
Unless otherwise agreed, the transferor of a security on due demand shall supply the purchaser with proof of authority to transfer or
with any other requisite necessary to obtain registration of the transfer of the security, but if the transfer is not for value, a transferor need
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not comply unless the purchaser pays the necessary expenses. If the transferor fails within a reasonable time to comply with the demand,
the purchaser may reject or rescind the transfer.
(5A Del. C. 1953, § 8-316; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
Part 4
Registration
§ 8-401. Duty of issuer to register transfer.
(a) If a certificated security in registered form is presented to an issuer with a request to register transfer or an instruction is presented
to an issuer with a request to register transfer of an uncertificated security, the issuer shall register the transfer as requested if:
(1) under the terms of the security the person seeking registration of transfer is eligible to have the security registered in its name;
(2) the endorsement or instruction is made by the appropriate person or by an agent who has actual authority to act on behalf of
the appropriate person;
(3) reasonable assurance is given that the endorsement or instruction is genuine and authorized (Section 8-402);
(4) any applicable law relating to the collection of taxes has been complied with;
(5) the transfer does not violate any restriction on transfer imposed by the issuer in accordance with Section 8-204;
(6) a demand that the issuer not register transfer has not become effective under Section 8-403, or the issuer has complied with
Section 8-403(b) but no legal process or indemnity bond is obtained as provided in Section 8-403(d); and
(7) the transfer is in fact rightful or is to a protected purchaser.
(b) If an issuer is under a duty to register a transfer of a security, the issuer is liable to a person presenting a certificated security or
an instruction for registration or to the person’s principal for loss resulting from unreasonable delay in registration or failure or refusal
to register the transfer.
(5A Del. C. 1953, § 8-401; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-402. Assurance that endorsement or instruction is effective.
(a) An issuer may require the following assurance that each necessary endorsement or each instruction is genuine and authorized:
(1) in all cases, a guaranty of the signature of the person making an endorsement or originating an instruction including, in the case
of an instruction, reasonable assurance of identity;
(2) if the endorsement is made or the instruction is originated by an agent, appropriate assurance of actual authority to sign;
(3) if the endorsement is made or the instruction is originated by a fiduciary pursuant to Section 8-107(a)(4) or (a)(5), appropriate
evidence of appointment or incumbency;
(4) if there is more than one fiduciary, reasonable assurance that all who are required to sign have done so; and
(5) if the endorsement is made or the instruction is originated by a person not covered by another provision of this subsection,
assurance appropriate to the case corresponding as nearly as may be to the provisions of this subsection.
(b) An issuer may elect to require reasonable assurance beyond that specified in this section.
(c) In this section:
(1) “Guaranty of the signature” means a guaranty signed by or on behalf of a person reasonably believed by the issuer to be
responsible. An issuer may adopt standards with respect to responsibility if they are not manifestly unreasonable.
(2) “Appropriate evidence of appointment or incumbency” means:
(i) in the case of a fiduciary appointed or qualified by a court, a certificate issued by or under the direction or supervision of the
court or an officer thereof and dated within 60 days before the date of presentation for transfer; or
(ii) in any other case, a copy of a document showing the appointment or a certificate issued by or on behalf of a person reasonably
believed by an issuer to be responsible or, in the absence of that document or certificate, other evidence the issuer reasonably
considered appropriate.
(5A Del. C. 1953, § 8-402; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-403. Demand that issuer not register transfer.
(a) A person who is an appropriate person to make an endorsement or originate an instruction may demand that the issuer not register
transfer of a security by communicating to the issuer a notification that identifies the registered owner and the issue of which the security
is a part and provides an address for communications directed to the person making the demand. The demand is effective only if it is
received by the issuer at a time and in a manner affording the issuer reasonable opportunity to act on it.
(b) If a certificated security in registered form is presented to an issuer with a request to register transfer or an instruction is presented
to an issuer with a request to register transfer of an uncertificated security after a demand that the issuer not register transfer has become
effective, the issuer shall promptly communicate to (i) the person who initiated the demand at the address provided in the demand and (ii)
the person who presented the security for registration of transfer or initiated the instruction requesting registration of transfer a notification
stating that:
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(1) the certificated security has been presented for registration of transfer or instruction for registration of transfer of uncertificated
security has been received;
(2) a demand that the issuer not register transfer had previously been received; and
(3) the issuer will withhold registration of transfer for a period of time stated in the notification in order to provide the person who
initiated the demand an opportunity to obtain legal process or an indemnity bond.
(c) The period described in subsection (b)(3) may not exceed 30 days after the date of communication of the notification. A shorter
period may be specified by the issuer if it is not manifestly unreasonable.
(d) An issuer is not liable to a person who initiated a demand that the issuer not register transfer for any loss the person suffers as a
result of registration of a transfer pursuant to an effective endorsement or instruction if the person who initiated the demand does not,
within the time stated in the issuer’s communication, either:
(1) obtain an appropriate restraining order, injunction, or other process from a court of competent jurisdiction enjoining the issuer
from registering the transfer; or
(2) file with the issuer an indemnity bond, sufficient in the issuer’s judgment to protect the issuer and any transfer agent, registrar,
or other agent of the issuer involved from any loss it or they may suffer by refusing to register the transfer.
(e) This section does not relieve an issuer from liability for registering transfer pursuant to an endorsement or instruction that was
not effective.
(71 Del. Laws, c. 75, § 1.)
§ 8-404. Wrongful registration.
(a) Except as otherwise provided in Section 8-406, an issuer is liable for wrongful registration of transfer if the issuer has registered a
transfer of a security to a person not entitled to it, and the transfer was registered:
(1) pursuant to an ineffective endorsement or instruction;
(2) after a demand that the issuer not register transfer became effective under Section 8-403(a) and the issuer did not comply with
Section 8-403(b);
(3) after the issuer had been served with an injunction, restraining order, or other legal process enjoining it from registering the
transfer, issued by a court of competent jurisdiction, and the issuer had a reasonable opportunity to act on the injunction, restraining
order, or other legal process; or
(4) by an issuer acting in collusion with the wrongdoer.
(b) An issuer that is liable for wrongful registration of transfer under subsection (a) on demand shall provide the person entitled to the
security with a like certificated or uncertificated security, and any payments or distributions that the person did not receive as a result
of the wrongful registration. If an overissue would result, the issuer’s liability to provide the person with a like security is governed by
Section 8-210.
(c) Except as otherwise provided in subsection (a) or in a law relating to the collection of taxes, an issuer is not liable to an owner
or other person suffering loss as a result of the registration of a transfer of a security if registration was made pursuant to an effective
endorsement or instruction.
(5A Del. C. 1953, § 8-311; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-405. Replacement of lost, destroyed, or wrongfully taken security certificate.
(a) If an owner of a certificated security, whether in registered or bearer form, claims that the certificate has been lost, destroyed, or
wrongfully taken, the issuer shall issue a new certificate if the owner:
(1) so requests before the issuer has notice that the certificate has been acquired by a protected purchaser;
(2) files with the issuer a sufficient indemnity bond; and
(3) satisfies other reasonable requirements imposed by the issuer.
(b) If, after the issue of a new security certificate, a protected purchaser of the original certificate presents it for registration of transfer,
the issuer shall register the transfer unless an overissue would result. In that case, the issuer’s liability is governed by Section 8-210. In
addition to any rights on the indemnity bond, an issuer may recover the new certificate from a person to whom it was issued or any person
taking under that person, except a protected purchaser.
(5A Del. C. 1953, § 8-405; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
§ 8-406. Obligation to notify issuer of lost, destroyed, or wrongfully taken security certificate.
If a security certificate has been lost, apparently destroyed, or wrongfully taken, and the owner fails to notify the issuer of that fact
within a reasonable time after the owner has notice of it and the issuer registers a transfer of the security before receiving notification,
the owner may not assert against the issuer a claim for registering the transfer under Section 8-404 or a claim to a new security certificate
under Section 8-405.
(5A Del. C. 1953, § 8-405; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
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§ 8-407. Authenticating trustee, transfer agent, and registrar.
A person acting as authenticating trustee, transfer agent, registrar, or other agent for an issuer in the registration of a transfer of its
securities, in the issue of new security certificates or uncertificated securities, or in the cancellation of surrendered security certificates
has the same obligation to the holder or owner of a certificated or uncertificated security with regard to the particular functions performed
as the issuer has in regard to those functions.
(5A Del. C. 1953, § 8-208; 55 Del. Laws, c. 349; 64 Del. Laws, c. 152, § 6; 71 Del. Laws, c. 75, § 1.)
Part 5
Security Entitlements
§ 8-501. Securities account; acquisition of security entitlement from securities intermediary.
(a) “Securities account” means an account to which a financial asset is or may be credited in accordance with an agreement under
which the person maintaining the account undertakes to treat the person for whom the account is maintained as entitled to exercise the
rights that comprise the financial asset.
(b) Except as otherwise provided in subsections (d) and (e), a person acquires a security entitlement if a securities intermediary:
(1) indicates by book entry that a financial asset has been credited to the person’s securities account;
(2) receives a financial asset from the person or acquires a financial asset for the person and, in either case, accepts it for credit to
the person’s securities account; or
(3) becomes obligated under other law, regulation, or rule to credit a financial asset to the person’s securities account.
(c) If a condition of subsection (b) has been met, a person has a security entitlement even though the securities intermediary does not
itself hold the financial asset.
(d) If a securities intermediary holds a financial asset for another person, and the financial asset is registered in the name of, payable
to the order of, or specially endorsed to the other person, and has not been endorsed to the securities intermediary or in blank, the other
person is treated as holding the financial asset directly rather than as having a security entitlement with respect to the financial asset.
(e) Issuance of a security is not establishment of a security entitlement.
(71 Del. Laws, c. 75, § 1; 72 Del. Laws, c. 30, § 1.)
§ 8-502. Assertion of adverse claim against entitlement holder.
An action based on an adverse claim to a financial asset, whether framed in conversion, replevin, constructive trust, equitable lien, or
other theory, may not be asserted against a person who acquires a security entitlement under Section 8-501 for value and without notice
of the adverse claim.
(71 Del. Laws, c. 75, § 1.)
§ 8-503. Property interest of entitlement holder in financial asset held by securities intermediary.
(a) To the extent necessary for a securities intermediary to satisfy all security entitlements with respect to a particular financial asset, all
interests in that financial asset held by the securities intermediary are held by the securities intermediary for the entitlement holders, are
not property of the securities intermediary, and are not subject to claims of creditors of the securities intermediary, except as otherwise
provided in Section 8-511.
(b) An entitlement holder’s property interest with respect to a particular financial asset under subsection (a) is a pro rata property interest
in all interests in that financial asset held by the securities intermediary, without regard to the time the entitlement holder acquired the
security entitlement or the time the securities intermediary acquired the interest in that financial asset.
(c) An entitlement holder’s property interest with respect to a particular financial asset under subsection (a) may be enforced against
the securities intermediary only by exercise of the entitlement holder’s rights under Sections 8-505 through 8-508.
(d) An entitlement holder’s property interest with respect to a particular financial asset under subsection (a) may be enforced against
a purchaser of the financial asset or interest therein only if:
(1) insolvency proceedings have been initiated by or against the securities intermediary;
(2) the securities intermediary does not have sufficient interests in the financial asset to satisfy the security entitlements of all of its
entitlement holders to that financial asset;
(3) the securities intermediary violated its obligations under Section 8-504 by transferring the financial asset or interest therein to
the purchaser; and
(4) the purchaser is not protected under subsection (e).
The trustee or other liquidator, acting on behalf of all entitlement holders having security entitlements with respect to a particular
financial asset, may recover the financial asset, or interest therein, from the purchaser. If the trustee or other liquidator elects not to
pursue that right, an entitlement holder whose security entitlement remains unsatisfied has the right to recover its interest in the financial
asset from the purchaser.
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(e) An action based on the entitlement holder’s property interest with respect to a particular financial asset under subsection (a), whether
framed in conversion, replevin, constructive trust, equitable lien, or other theory, may not be asserted against any purchaser of a financial
asset or interest therein who gives value, obtains control, and does not act in collusion with the securities intermediary in violating the
securities intermediary’s obligations under Section 8-504.
(71 Del. Laws, c. 75, § 1.)
§ 8-504. Duty of securities intermediary to maintain financial asset.
(a) A securities intermediary shall promptly obtain and thereafter maintain a financial asset in a quantity corresponding to the aggregate
of all security entitlements it has established in favor of its entitlement holders with respect to that financial asset. The securities
intermediary may maintain those financial assets directly or through one or more other securities intermediaries.
(b) Except to the extent otherwise agreed by its entitlement holder, a securities intermediary may not grant any security interests in a
financial asset it is obligated to maintain pursuant to subsection (a).
(c) A securities intermediary satisfies the duty in subsection (a) if:
(1) the securities intermediary acts with respect to the duty as agreed upon by the entitlement holder and the securities intermediary; or
(2) in the absence of agreement, the securities intermediary exercises due care in accordance with reasonable commercial standards
to obtain and maintain the financial asset.
(d) This section does not apply to a clearing corporation that is itself the obligor of an option or similar obligation to which its entitlement
holders have security entitlements.
(71 Del. Laws, c. 75, § 1.)
§ 8-505. Duty of securities intermediary with respect to payments and distributions.
(a) A securities intermediary shall take action to obtain a payment or distribution made by the issuer of a financial asset. A securities
intermediary satisfies the duty if:
(1) the securities intermediary acts with respect to the duty as agreed upon by the entitlement holder and the securities intermediary; or
(2) in the absence of agreement, the securities intermediary exercises due care in accordance with reasonable commercial standards
to attempt to obtain the payment or distribution.
(b) A securities intermediary is obligated to its entitlement holder for a payment or distribution made by the issuer of a financial asset
if the payment or distribution is received by the securities intermediary.
(71 Del. Laws, c. 75, § 1.)
§ 8-506. Duty of securities intermediary to exercise rights as directed by entitlement holder.
A securities intermediary shall exercise rights with respect to a financial asset if directed to do so by an entitlement holder. A securities
intermediary satisfies the duty if:
(1) the securities intermediary acts with respect to the duty as agreed upon by the entitlement holder and the securities intermediary; or
(2) in the absence of agreement, the securities intermediary either places the entitlement holder in a position to exercise the rights
directly or exercises due care in accordance with reasonable commercial standards to follow the direction of the entitlement holder.
(71 Del. Laws, c. 75, § 1.)
§ 8-507. Duty of securities intermediary to comply with entitlement order.
(a) A securities intermediary shall comply with an entitlement order if the entitlement order is originated by the appropriate person,
the securities intermediary has had reasonable opportunity to assure itself that the entitlement order is genuine and authorized, and the
securities intermediary has had reasonable opportunity to comply with the entitlement order. A securities intermediary satisfies the duty if:
(1) the securities intermediary acts with respect to the duty as agreed upon by the entitlement holder and the securities intermediary; or
(2) in the absence of agreement, the securities intermediary exercises due care in accordance with reasonable commercial standards
to comply with the entitlement order.
(b) If a securities intermediary transfers a financial asset pursuant to an ineffective entitlement order, the securities intermediary shall
reestablish a security entitlement in favor of the person entitled to it, and pay or credit any payments or distributions that the person did
not receive as a result of the wrongful transfer. If the securities intermediary does not reestablish a security entitlement, the securities
intermediary is liable to the entitlement holder for damages.
(71 Del. Laws, c. 75, § 1.)
§ 8-508. Duty of securities intermediary to change entitlement holder’s position to other form of security
holding.
A securities intermediary shall act at the direction of an entitlement holder to change a security entitlement into another available
form of holding for which the entitlement holder is eligible, or to cause the financial asset to be transferred to a securities account of the
entitlement holder with another securities intermediary. A securities intermediary satisfies the duty if:
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(1) the securities intermediary acts as agreed upon by the entitlement holder and the securities intermediary; or
(2) in the absence of agreement, the securities intermediary exercises due care in accordance with reasonable commercial standards
to follow the direction of the entitlement holder.
(71 Del. Laws, c. 75, § 1.)
§ 8-509. Specification of duties of securities intermediary by other statute or regulation; manner of
performance of duties of securities intermediary and exercise of rights of entitlement holder.
(a) If the substance of a duty imposed upon a securities intermediary by Sections 8-504 through 8-508 is the subject of other statute,
regulation, or rule, compliance with that statute, regulation, or rule satisfies the duty.
(b) To the extent that specific standards for the performance of the duties of a securities intermediary or the exercise of the rights
of an entitlement holder are not specified by other statute, regulation, or rule or by agreement between the securities intermediary and
entitlement holder, the securities intermediary shall perform its duties and the entitlement holder shall exercise its rights in a commercially
reasonable manner.
(c) The obligation of a securities intermediary to perform the duties imposed by Sections 8-504 through 8-508 is subject to:
(1) rights of the securities intermediary arising out of a security interest under a security agreement with the entitlement holder or
otherwise; and
(2) rights of the securities intermediary under other law, regulation, rule, or agreement to withhold performance of its duties as a
result of unfulfilled obligations of the entitlement holder to the securities intermediary.
(d) Sections 8-504 through 8-508 do not require a securities intermediary to take any action that is prohibited by other statute, regulation,
or rule.
(71 Del. Laws, c. 75, § 1.)
§ 8-510. Rights of purchaser of security entitlement from entitlement holder.
(a) In a case not covered by the priority rules in Article 9 or the rules stated in subsection (c), an action based on an adverse claim to
a financial asset or security entitlement, whether framed in conversion, replevin, constructive trust, equitable lien, or other theory, may
not be asserted against a person who purchases a security entitlement, or an interest therein, from an entitlement holder if the purchaser
gives value, does not have notice of the adverse claim, and obtains control.
(b) If an adverse claim could not have been asserted against an entitlement holder under Section 8-502, the adverse claim cannot be
asserted against a person who purchases a security entitlement, or an interest therein, from the entitlement holder.
(c) In a case not covered by the priority rules in Article 9, a purchaser for value of a security entitlement, or an interest therein, who
obtains control has priority over a purchaser of a security entitlement, or an interest therein, who does not obtain control. Except as
otherwise provided in subsection (d), purchasers who have control rank according to priority in time of:
(1) the purchaser’s becoming the person for whom the securities account, in which the security entitlement is carried, is maintained,
if the purchaser obtained control under Section 8-106(d)(1);
(2) the securities intermediary’s agreement to comply with the purchaser’s entitlement orders with respect to security entitlements
carried or to be carried in the securities account in which the security entitlement is carried, if the purchaser obtained control under
Section 8-106(d)(2); or
(3) if the purchaser obtained control through another person under Section 8-106(d)(3), the time on which priority would be based
under this subsection if the other person were the secured party.
(d) A securities intermediary as purchaser has priority over a conflicting purchaser who has control unless otherwise agreed by the
securities intermediary.
(71 Del. Laws, c. 75, § 1; 72 Del. Laws, c. 401, § 24.)
§ 8-511. Priority among security interests and entitlement holders.
(a) Except as otherwise provided in subsections (b) and (c), if a securities intermediary does not have sufficient interests in a particular
financial asset to satisfy both its obligations to entitlement holders who have security entitlements to that financial asset and its obligation
to a creditor of the securities intermediary who has a security interest in that financial asset, the claims of entitlement holders, other than
the creditor, have priority over the claim of the creditor.
(b) A claim of a creditor of a securities intermediary who has a security interest in a financial asset held by a securities intermediary
has priority over claims of the securities intermediary’s entitlement holders who have security entitlements with respect to that financial
asset if the creditor has control over the financial asset.
(c) If a clearing corporation does not have sufficient financial assets to satisfy both its obligations to entitlement holders who have
security entitlements with respect to a financial asset and its obligation to a creditor of the clearing corporation who has a security interest
in that financial asset, the claim of the creditor has priority over the claims of entitlement holders.
(71 Del. Laws, c. 75, § 1.)
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Part 6
Transition Provisions
§ 8-601. Effective date.
This Act takes effect on January 1, 1998.
(71 Del. Laws, c. 75, § 1.)
§ 8-602. Savings clause.
(a) This Act does not affect an action or proceeding commenced before this Act takes effect.
(b) If a security interest in a security is perfected at the date this Act takes effect, and the action by which the security interest was
perfected would suffice to perfect a security interest under this Act, no further action is required to continue perfection. Except to the
extent otherwise provided or permitted by subsection (d) hereof, if a security interest in a security is perfected at the date this Act takes
effect but the action by which the security interest was perfected would not suffice to perfect a security interest under this Act, the security
interest remains perfected for a period of one year after the effective date and continues perfected thereafter if appropriate action to perfect
under this Act or otherwise under the Uniform Commercial Code is taken within that period. If a security interest is perfected at the date
this Act takes effect and the security interest can be perfected by filing under this Act, a financing statement signed by the secured party
instead of the debtor may be filed within that period to continue perfection or thereafter to perfect.
(c) Prior to the effective date of this Act, uncertificated interests in general and limited partnerships were not deemed to be securities
subject to Article 8 of the Uniform Commercial Code. Security interests with respect to uncertificated interests in general and limited
partnerships that are perfected when this Act becomes effective shall remain perfected until they lapse as provided in Article 9 of the
Uniform Commercial Code and may be continued as permitted by Article 9 of the Uniform Commercial Code. For such uncertificated
interests in general and limited partnerships, Article 9 of the Uniform Commercial Code in effect immediately prior to the effective date
of this Act shall apply to any questions of priority if the positions of the parties were fixed prior to the effective date of this Act.
(d) If a security interest is perfected with respect to certificated securities under Article 8 of the Uniform Commercial Code prior to
the effective date of this Act, and if the filing of a financing statement would be required for the perfection of the security interest after
the effective date of this Act, the security interest remains perfected for a period of three years after the effective date of this Act and
continues perfected thereafter if appropriate action to perfect under this Act or otherwise under the Uniform Commercial Code is taken
within that period.
(71 Del. Laws, c. 75, § 1.)
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Subtitle I
Uniform Commercial Code
Article 9
Secured Transactions
Part 1
General Provisions
1. Short Title, Definitions, and General Concepts
§ 9-101. Short title.
This Article may be cited as Uniform Commercial Code — Secured Transactions.
(72 Del. Laws, c. 401, § 1.)
§ 9-102. Definitions and index of definitions.
(a) Article 9 definitions. — In this Article:
(1) “Accession” means goods that are physically united with other goods in such a manner that the identity of the original goods
is not lost.
(2) “Account”, except as used in “account for”, means (i) a right to payment of a monetary obligation, whether or not earned by
performance, (A) for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (B) for services rendered
or to be rendered, (C) for a policy of insurance issued or to be issued, (D) for a secondary obligation incurred or to be incurred, (E) for
energy provided or to be provided, (F) for the use or hire of a vessel under a charter or other contract, (G) arising out of the use of a credit
or charge card or information contained on or for use with the card, or (H) as winnings in a lottery or other game of chance operated or
sponsored by a State, governmental unit of a State, or person licensed or authorized to operate the game by a State or governmental unit
of a State or (ii) any credit device account. The term includes health-care-insurance receivables. The term does not include (i) rights to
payment evidenced by chattel paper or an instrument, (ii) commercial tort claims, (iii) deposit accounts, (iv) investment property, (v)
letter-of-credit rights or letters of credit, or (vi) rights to payment for money or funds advanced or sold, other than rights arising out of
(A) the use of a credit or charge card or information contained on or for use with the card or (B) a credit device account.
(3) “Account debtor” means a person obligated on an account, chattel paper, or general intangible. The term does not include persons
obligated to pay a negotiable instrument, even if the instrument constitutes part of chattel paper.
(4) “Accounting”, except as used in “accounting for”, means a record:
(A) authenticated by a secured party;
(B) indicating the aggregate unpaid secured obligations as of a date not more than 35 days earlier or 35 days later than the date
of the record; and
(C) identifying the components of the obligations in reasonable detail.
(5) “Agricultural lien” means an interest, other than a security interest, in farm products:
(A) which secures payment or performance of an obligation for:
(i) goods or services furnished in connection with a debtor’s farming operation; or
(ii) rent on real property leased by a debtor in connection with its farming operation;
(B) which is created by statute in favor of a person that:
(i) in the ordinary course of its business furnished goods or services to a debtor in connection with a debtor’s farming operation;
or
(ii) leased real property to a debtor in connection with the debtor’s farming operation; and
(C) whose effectiveness does not depend on the person’s possession of the personal property.
(6) “As-extracted collateral” means:
(A) oil, gas, or other minerals that are subject to a security interest that:
(i) is created by a debtor having an interest in the minerals before extraction; and
(ii) attaches to the minerals as extracted; or
(B) accounts arising out of the sale at the wellhead or minehead of oil, gas, or other minerals in which the debtor had an interest
before extraction.
(7) “Authenticate” means:
(A) to sign; or
(B) with present intent to adopt or accept a record, to attach to or logically associate with the record an electronic sound, symbol,
or process.
(8) “Bank” means an organization that is engaged in the business of banking. The term includes savings banks, savings and loan
associations, credit unions, and trust companies.
(9) “Cash proceeds” means proceeds that are money, checks, deposit accounts, or the like.
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(10) “Certificate of title” means a certificate of title with respect to which a statute provides for the security interest in question to
be indicated on the certificate as a condition or result of the security interest’s obtaining priority over the rights of a lien creditor with
respect to the collateral. The term includes another record maintained as an alternative to a certificate of title by the governmental unit
that issues certificates of title if a statute permits the security interest in question to be indicated on the record as a condition or result
of the security interest’s obtaining priority over the rights of a lien creditor with respect to the collateral.
(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 (i) charters or other contracts involving the use or hire of a vessel
or (ii) records that evidence a right to payment arising out of the use of a credit or charge card, credit device account, or information
contained on or for use with the card or credit device account. If a transaction is evidenced by records that include an instrument or
series of instruments, the group of records taken together constitutes chattel paper.
(12) “Collateral” means the property subject to a security interest or agricultural lien. The term includes:
(A) proceeds to which a security interest attaches;
(B) accounts, chattel paper, payment intangibles, and promissory notes that have been sold; and
(C) goods that are the subject of a consignment.
(13) “Commercial tort claim” means a claim arising in tort with respect to which:
(A) the claimant is an organization; or
(B) the claimant is an individual and the claim:
(i) arose in the course of the claimant’s business or profession; and
(ii) does not include damages arising out of personal injury to or the death of an individual.
(14) “Commodity account” means an account maintained by a commodity intermediary in which a commodity contract is carried
for a commodity customer.
(15) “Commodity contract” means a commodity futures contract, an option on a commodity futures contract, a commodity option,
or another contract if the contract or option is:
(A) traded on or subject to the rules of a board of trade that has been designated as a contract market for such a contract pursuant
to federal commodities laws; or
(B) traded on a foreign commodity board of trade, exchange, or market, and is carried on the books of a commodity intermediary
for a commodity customer.
(16) “Commodity customer” means a person for which a commodity intermediary carries a commodity contract on its books.
(17) “Commodity intermediary” means a person that:
(A) is registered as a futures commission merchant under federal commodities law; or
(B) in the ordinary course of its business provides clearance or settlement services for a board of trade that has been designated
as a contract market pursuant to federal commodities law.
(18) “Communicate” means:
(A) to send a written or other tangible record;
(B) to transmit a record by any means agreed upon by the persons sending and receiving the record; or
(C) in the case of transmission of a record to or by a filing office, to transmit a record by any means prescribed by filing-office rule.
(19) “Consignee” means a merchant to which goods are delivered in a consignment.
(20) “Consignment” means a transaction, regardless of its form, in which a person delivers goods to a merchant for the purpose
of sale and:
(A) the merchant:
(i) deals in goods of that kind under a name other than the name of the person making delivery;
(ii) is not an auctioneer; and
(iii) is not generally known by its creditors to be substantially engaged in selling the goods of others;
(B) with respect to each delivery, the aggregate value of the goods is $1,000 or more at the time of delivery;
(C) the goods are not consumer goods immediately before delivery; and
(D) the transaction does not create a security interest that secures an obligation.
(21) “Consignor” means a person that delivers goods to a consignee in a consignment.
(22) “Consumer debtor” means a debtor in a consumer transaction.
(23) “Consumer goods” means goods that are used or bought for use primarily for personal, family, or household purposes.
(24) “Consumer-goods transaction” means a consumer transaction in which:
(A) an individual incurs an obligation primarily for personal, family, or household purposes; and
(B) a security interest in consumer goods secures the obligation.
(25) “Consumer obligor” means an obligor who is an individual and who incurred the obligation as part of a transaction entered into
primarily for personal, family, or household purposes.
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(26) “Consumer transaction” means a transaction in which (i) an individual incurs an obligation primarily for personal, family, or
household purposes, (ii) a security interest secures the obligation, and (iii) the collateral is held or acquired primarily for personal,
family, or household purposes. The term includes consumer-goods transactions.
(27) “Continuation statement” means an amendment of a financing statement which:
(A) identifies, by its file number, the initial financing statement to which it relates; and
(B) indicates that it is a continuation statement for, or that it is filed to continue the effectiveness of, the identified financing
statement.
(27A) “Credit device account” means any right to payment for money due or to become due under any agreement or plan relating
to a credit card, charge card or other similar system, pursuant to which access is provided by a card, check, identification code or other
means of identification or access contemplated by such agreement or plan.
(28) “Debtor” means:
(A) a person having an interest, other than a security interest or other lien, in the collateral, whether or not the person is an obligor;
(B) a seller of accounts, chattel paper, payment intangibles, or promissory notes; or
(C) a consignee.
(29) “Deposit account” means a demand, time, savings, passbook, or similar account maintained with a bank. The term does not
include investment property or accounts evidenced by an instrument.
(30) “Document” means a document of title or a receipt of the type described in Section 7-201(b).
(31) “Electronic chattel paper” means chattel paper evidenced by a record or records consisting of information stored in an electronic
medium.
(32) “Encumbrance” means a right, other than an ownership interest, in real property. The term includes mortgages and other liens
on real property.
(33) “Equipment” means goods other than inventory, farm products, or consumer goods.
(34) “Farm products” means goods, other than standing timber, with respect to which the debtor is engaged in a farming operation
and which are:
(A) crops grown, growing, or to be grown, including:
(i) crops produced on trees, vines, and bushes; and
(ii) aquatic goods produced in aquacultural operations;
(B) livestock, born or unborn, including aquatic goods produced in aquacultural operations;
(C) supplies used or produced in a farming operation; or
(D) products of crops or livestock in their unmanufactured states.
(35) “Farming operation” means raising, cultivating, propagating, fattening, grazing, or any other farming, livestock, or aquacultural
operation.
(36) “File number” means the number assigned to an initial financing statement pursuant to Section 9-519(a).
(37) “Filing office” means an office designated in Section 9-501 as the place to file a financing statement.
(38) “Filing-office rule” means a rule adopted pursuant to Section 9-526.
(39) “Financing statement” means a record or records composed of an initial financing statement and any filed record relating to
the initial financing statement.
(40) “Fixture filing” means the filing of a financing statement covering goods that are or are to become fixtures and satisfying Section
9-502(a) and (b). The term includes the filing of a financing statement covering goods of a transmitting utility which are or are to
become fixtures.
(41) “Fixtures” means goods that have become so related to particular real property that an interest in them arises under real property
law.
(42) “General intangible” means any personal property, including things in action, other than accounts, chattel paper, commercial
tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money, and
oil, gas, or other minerals before extraction. The term includes payment intangibles and software.
(43) [Reserved.]
(44) “Goods” means all things that are movable when a security interest attaches. The term includes (i) fixtures, (ii) standing timber
that is to be cut and removed under a conveyance or contract for sale, (iii) the unborn young of animals, (iv) crops grown, growing, or
to be grown, even if the crops are produced on trees, vines, or bushes, and (v) manufactured homes. The term also includes a computer
program embedded in goods and any supporting information provided in connection with a transaction relating to the program if (i) the
program is associated with the goods in such a manner that it customarily is considered part of the goods, or (ii) by becoming the owner
of the goods, a person acquires a right to use the program in connection with the goods. The term does not include a computer program
embedded in goods that consist solely of the medium in which the program is embedded. The term also does not include accounts,
chattel paper, commercial tort claims, deposit accounts, documents, general intangibles, instruments, investment property, letter-ofcredit rights, letters of credit, money, or oil, gas, or other minerals before extraction.
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(45) “Governmental unit” means a subdivision, agency, department, county, parish, municipality, or other unit of the government
of the United States, a State, or a foreign country. The term includes an organization having a separate corporate existence if the
organization is eligible to issue debt on which interest is exempt from income taxation under the laws of the United States.
(46) “Health-care-insurance receivable” means an interest in or claim under a policy of insurance which is a right to payment of a
monetary obligation for health-care goods or services provided.
(47) “Instrument” means a negotiable instrument or any other writing that evidences a right to the payment of a monetary obligation,
is not itself a security agreement or lease, and is of a type that in ordinary course of business is transferred by delivery with any necessary
indorsement or assignment. The term does not include (i) investment property, (ii) letters of credit, or (iii) writings 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.
(48) “Inventory” means goods, other than farm products, which:
(A) are leased by a person as lessor;
(B) are held by a person for sale or lease or to be furnished under a contract of service;
(C) are furnished by a person under a contract of service; or
(D) consist of raw materials, work in process, or materials used or consumed in a business.
(49) “Investment property” means a security, whether certificated or uncertificated, security entitlement, securities account,
commodity contract, or commodity account.
(50) “Jurisdiction of organization”, with respect to a registered organization, means the jurisdiction under whose law the organization
is formed or organized.
(51) “Letter-of-credit right” means a right to payment or performance under a letter of credit, whether or not the beneficiary has
demanded or is at the time entitled to demand payment or performance. The term does not include the right of a beneficiary to demand
payment or performance under a letter of credit.
(52) “Lien creditor” means:
(A) a creditor that has acquired a lien on the property involved by attachment, levy, or the like;
(B) an assignee for benefit of creditors from the time of assignment;
(C) a trustee in bankruptcy from the date of the filing of the petition; or
(D) a receiver in equity from the time of appointment.
(53) “Manufactured home” means a structure, transportable in one or more sections, which, in the traveling mode, is eight body feet
or more in width or 40 body feet or more in length, or, when erected on site, is 320 or more square feet, and which is built on a permanent
chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required utilities, and
includes the plumbing, heating, air-conditioning, and electrical systems contained therein. The term includes any structure that meets
all of the requirements of this paragraph except the size requirements and with respect to which the manufacturer voluntarily files a
certification required by the United States Secretary of Housing and Urban Development and complies with the standards established
under Title 42 of the United States Code.
(54) “Manufactured-home transaction” means a secured transaction:
(A) that creates a purchase-money security interest in a manufactured home, other than a manufactured home held as inventory; or
(B) in which a manufactured home, other than a manufactured home held as inventory, is the primary collateral.
(55) “Mortgage” means a consensual interest in real property, including fixtures, which secures payment or performance of an
obligation.
(56) “New debtor” means a person that becomes bound as debtor under Section 9-203(d) by a security agreement previously entered
into by another person.
(57) “New value” means (i) money, (ii) money’s worth in property, services, or new credit, or (iii) release by a transferee of an
interest in property previously transferred to the transferee. The term does not include an obligation substituted for another obligation.
(58) “Noncash proceeds” means proceeds other than cash proceeds.
(59) “Obligor” means a person that, with respect to an obligation secured by a security interest in or an agricultural lien on the
collateral, (i) owes payment or other performance of the obligation, (ii) has provided property other than the collateral to secure payment
or other performance of the obligation, or (iii) is otherwise accountable in whole or in part for payment or other performance of the
obligation. The term does not include issuers or nominated persons under a letter of credit.
(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).
(61) “Payment intangible” means a general intangible under which the account debtor’s principal obligation is a monetary obligation.
(62) “Person related to”, with respect to an individual, means:
(A) the spouse of the individual;
(B) a brother, brother-in-law, sister, or sister-in-law of the individual;
(C) an ancestor or lineal descendant of the individual or the individual’s spouse; or
(D) any other relative, by blood or marriage, of the individual or the individual’s spouse who shares the same home with the
individual.
(63) “Person related to”, with respect to an organization, means:
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(A) a person directly or indirectly controlling, controlled by, or under common control with the organization;
(B) an officer or director of, or a person performing similar functions with respect to, the organization;
(C) an officer or director of, or a person performing similar functions with respect to, a person described in subparagraph (A);
(D) the spouse of an individual described in subparagraph (A), (B), or (C); or
(E) an individual who is related by blood or marriage to an individual described in subparagraph (A), (B), (C), or (D) and shares
the same home with the individual.
(64) “Proceeds”, except as used in Section 9-609(b), means the following property:
(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral;
(B) whatever is collected on, or distributed on account of, collateral;
(C) rights arising out of collateral;
(D) to the extent of the value of collateral, claims arising out of the loss, nonconformity, or interference with the use of, defects
or infringement of rights in, or damage to, the collateral; or
(E) to the extent of the value of collateral and to the extent payable to the debtor or the secured party, insurance payable by reason
of the loss or nonconformity of, defects or infringement of rights in, or damage to, the collateral.
(65) “Promissory note” means an instrument that evidences a promise to pay a monetary obligation, does not evidence an order to
pay, and does not contain an acknowledgment by a bank that the bank has received for deposit a sum of money or funds.
(66) “Proposal” means a record authenticated by a secured party which includes the terms on which the secured party is willing to
accept collateral in full or partial satisfaction of the obligation it secures pursuant to Sections 9-620, 9-621, and 9-622.
(67) “Public-finance transaction” means a secured transaction in connection with which:
(A) debt securities are issued;
(B) all or a portion of the securities issued have an initial stated maturity of at least 20 years; and
(C) the debtor, obligor, secured party, account debtor or other person obligated on collateral, assignor or assignee of a secured
obligation, or assignor or assignee of a security interest is a State or a governmental unit of a State.
(68) “Public organic record” means a record that is available to the public for inspection and is:
(A) a record consisting of the record initially filed with or issued by a State or the United States to form or organize an organization
and any record filed with or issued by the State or the United States which amends, restates, or corrects the initial record;
(B) an organic record of a business trust consisting of the record initially filed with a State and any record filed with the State
which amends, restates, or corrects the initial record, if a statute of the State governing business trusts requires that the record be
filed with the State; or
(C) a record consisting of legislation enacted by the legislature of a State or the Congress of the United States which forms or
organizes an organization, any record amending the legislation, and any record filed with or issued by the State or the United States
which amends, restates, or corrects the name of the organization.
(69) “Pursuant to commitment”, with respect to an advance made or other value given by a secured party, means pursuant to the
secured party’s obligation, whether or not a subsequent event of default or other event not within the secured party’s control has relieved
or may relieve the secured party from its obligation.
(70) “Record”, except as used in “for record”, “of record”, “record or legal title”, and “record owner”, means information that is
inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form.
(71) “Registered organization” means an organization formed or organized solely under the law of a single State or the United States
by the filing of a public organic record with, the issuance of a public organic record by, or the enactment of legislation by the State or
the United States. The term includes a business trust that is formed or organized under the law of a single State if a statute of the State
governing business trusts requires that the business trust’s organic record be filed with the State. The term also includes a series of a
registered organization if the series is an organization formed or organized under the law of a single State and the statute of the State
governing the series requires that the public organic record of the series be filed with the State.
(72) “Secondary obligor” means an obligor to the extent that:
(A) the obligor’s obligation is secondary; or
(B) the obligor has a right of recourse with respect to an obligation secured by collateral against the debtor, another obligor, or
property of either.
(73) “Secured party” means:
(A) a person in whose favor a security interest is created or provided for under a security agreement, whether or not any obligation
to be secured is outstanding;
(B) a person that holds an agricultural lien;
(C) a consignor;
(D) a person to which accounts, chattel paper, payment intangibles, or promissory notes have been sold;
(E) a trustee, indenture trustee, agent, collateral agent, or other representative in whose favor a security interest or agricultural
lien is created or provided for; or
(F) a person that holds a security interest arising under Section 2-401, 2-505, 2-711(3), 2A-508(5), 4-210, or 5-118.
(74) “Security agreement” means an agreement that creates or provides for a security interest.
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(75) “Send”, in connection with a record or notification, means:
(A) to deposit in the mail, deliver for transmission, or transmit by any other usual means of communication, with postage or cost
of transmission provided for, addressed to any address reasonable under the circumstances; or
(B) to cause the record or notification to be received within the time that it would have been received if properly sent under
subparagraph (A).
(76) “Software” means a computer program and any supporting information provided in connection with a transaction relating to
the program. The term does not include a computer program that is included in the definition of goods.
(77) “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.
(78) “Supporting obligation” means a letter-of-credit right or secondary obligation that supports the payment or performance of an
account, chattel paper, a document, a general intangible, an instrument, or investment property.
(79) “Tangible chattel paper” means chattel paper evidenced by a record or records consisting of information that is inscribed on
a tangible medium.
(80) “Termination statement” means an amendment of a financing statement which:
(A) identifies, by its file number, the initial financing statement to which it relates; and
(B) indicates either that it is a termination statement or that the identified financing statement is no longer effective.
(81) “Transmitting utility” means a person primarily engaged in the business of:
(A) operating a railroad, subway, street railway, or trolley bus;
(B) transmitting communications electrically, electromagnetically, or by light;
(C) transmitting goods by pipeline or sewer; or
(D) transmitting or producing and transmitting electricity, steam, gas, or water.
(b) Definitions in other Articles. — “Control” as provided in Section 7-106 and the following definitions in other Articles apply to
this Article:
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“Applicant”
“Beneficiary”
“Broker”
“Certificated security”
“Check”
“Clearing corporation”
“Contract for sale”
“Customer”
“Entitlement holder”
Financial asset”
“Holder in due course”
“Issuer” (with respect to a letter of credit or letter-of-credit right)
“Issuer” (with respect to a security)
“Issuer” (with respect to documents of title)
“Lease”
“Lease agreement”
“Lease contract”
“Leasehold interest”
“Lessee”
“Lessee in ordinary course of business”
“Lessor”
“Lessor’s residual interest”
“Letter of credit”
“Merchant”
“Negotiable instrument”
“Nominated person”
“Note”
“Proceeds of a letter of credit”
“Prove”
“Sale”
“Securities account”
“Securities intermediary”
“Security”
“Security certificate”
“Security entitlement”
“Uncertificated security”
Section 5–102
Section 5–102
Section 8–102
Section 8–102
Section 3–104
Section 8–102
Section 2–106
Section 4-104
Section 8-102
Section 8-102
Section 3-302
Section 5-102
Section 8-201
Section 7-102
Section 2A-103
Section 2A-103
Section 2A-103
Section 2A-103
Section 2A-103
Section 2A-103
Section 2A-103
Section 2A-103
Section 5-102
Section 2-104
Section 3-104
Section 5-102
Section 3-104
Section 5-114
Section 3-103
Section 2-106
Section 8-501
Section 8-102
Section 8-102
Section 8-102
Section 8-102
Section 8-102
(c) Article 1 definitions and principles. — Article 1 contains general definitions and principles of construction and interpretation
applicable throughout this Article.
(72 Del. Laws, c. 401, § 1; 70 Del. Laws, c. 186, § 1; 74 Del. Laws, c. 332, §§ 43-45; 79 Del. Laws, c. 15, §§ 1-4; 81 Del. Laws, c.
353, § 2.)
§ 9-103. Purchase-money security interest; application of payments; burden of establishing.
(a) Definitions. — In this section:
(1) “purchase-money collateral” means goods or software that secures a purchase-money obligation incurred with respect to that
collateral; and
(2) “purchase-money obligation” means an obligation of an obligor incurred as all or part of the price of the collateral or for value
given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used.
(b) Purchase-money security interest in goods. — A security interest in goods is a purchase-money security interest:
(1) to the extent that the goods are purchase-money collateral with respect to that security interest;
(2) if the security interest is in inventory that is or was purchase-money collateral, also to the extent that the security interest secures a
purchase-money obligation incurred with respect to other inventory in which the secured party holds or held a purchase-money security
interest; and
(3) also to the extent that the security interest secures a purchase-money obligation incurred with respect to software in which the
secured party holds or held a purchase-money security interest.
(c) Purchase-money security interest in software. — A security interest in software is a purchase-money security interest to the extent
that the security interest also secures a purchase-money obligation incurred with respect to goods in which the secured party holds or
held a purchase-money security interest if:
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(1) the debtor acquired its interest in the software in an integrated transaction in which it acquired an interest in the goods; and
(2) the debtor acquired its interest in the software for the principal purpose of using the software in the goods.
(d) Consignor’s inventory purchase-money security interest. — The security interest of a consignor in goods that are the subject of a
consignment is a purchase-money security interest in inventory.
(e) Application of payment in non-consumer-goods transaction. — In a transaction other than a consumer-goods transaction, if the
extent to which a security interest is a purchase-money security interest depends on the application of a payment to a particular obligation,
the payment must be applied:
(1) in accordance with any reasonable method of application to which the parties agree;
(2) in the absence of the parties’ agreement to a reasonable method, in accordance with any intention of the obligor manifested at
or before the time of payment; or
(3) in the absence of an agreement to a reasonable method and a timely manifestation of the obligor’s intention, in the following order:
(A) to obligations that are not secured; and
(B) if more than one obligation is secured, to obligations secured by purchase-money security interests in the order in which those
obligations were incurred.
(f) No loss of status of purchase-money security interest in non-consumer-goods transaction. — In a transaction other than a consumergoods transaction, a purchase-money security interest does not lose its status as such, even if:
(1) the purchase-money collateral also secures an obligation that is not a purchase-money obligation;
(2) collateral that is not purchase-money collateral also secures the purchase-money obligation; or
(3) the purchase-money obligation has been renewed, refinanced, consolidated, or restructured.
(g) Burden of proof in non-consumer-goods transaction. — In a transaction other than a consumer-goods transaction, a secured party
claiming a purchase-money security interest has the burden of establishing the extent to which the security interest is a purchase-money
security interest.
(h) Non-consumer-goods transactions; no inference. — The limitation of the rules in subsections (e), (f), and (g) to transactions other
than consumer-goods transactions is intended to leave to the court the determination of the proper rules in consumer-goods transactions.
The court may not infer from that limitation the nature of the proper rule in consumer-goods transactions and may continue to apply
established approaches.
(72 Del. Laws, c. 401, § 1.)
§ 9-104. Control of deposit account.
(a) Requirements for control. — A secured party has control of a deposit account if:
(1) the secured party is the bank with which the deposit account is maintained;
(2) the debtor, secured party, and bank have agreed in an authenticated record that the bank will comply with instructions originated
by the secured party directing disposition of the funds in the account without further consent by the debtor;
(3) the secured party becomes the bank’s customer with respect to the deposit account;
(4) the debtor, secured party, and bank have authenticated a record that (i) is conspicuously denominated a control agreement, (ii)
identifies the specific deposit account in which the secured party claims a security interest, and (iii) contains one or more provisions
addressing the disposition of funds in the deposit account or the right to direct the disposition of funds in the deposit account; or
(5) the name on the deposit account is the name of the secured party or indicates that the secured party has a security interest in
the deposit account.
(b) Debtor’s right to direct disposition. — A secured party that has satisfied subsection (a) has control, even if the debtor retains the
right to direct the disposition of funds from the deposit account.
(c) No implied duties of bank. — The authentication of a record by the bank under subsection (a)(2) or (a)(4) does not impose upon
the bank any duty not expressly agreed to by the bank in the record. The naming of the deposit account in the name of the secured party
or with an indication that the secured party has a security interest in the deposit account under subsection (a)(5) does not impose upon
the bank any duty not expressly agreed to by the bank.
(d) Conditions not relevant. — A secured party has control under subsection (a)(2) even if any duty of the bank to comply with
instructions originated by the secured party directing disposition of the funds in the deposit account is subject to any condition or conditions
(other than further consent by the debtor). A secured party has control under subsection (a)(4) even if the provision or provisions addressing
the disposition of funds in the deposit account or the right to direct the disposition of funds in the deposit account are subject to any
condition or conditions (other than further consent by the debtor).
(e) No inferences. — The procedures and requirements of subsections (a)(4) and (a)(5) available to obtain control shall not be used
in interpreting the sufficiency of a secured party’s compliance with the procedures and requirements of subsections (a)(1), (a)(2) or (a)
(3) to obtain control. The provisions of subsections (a)(4) and (a)(5) shall create no inference regarding the requirements for compliance
with subsection (a)(1), (a)(2) or (a)(3).
(72 Del. Laws, c. 401, § 1; 76 Del. Laws, c. 92, §§ 1, 2.)
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§ 9-105. Control of electronic chattel paper.
(a) General rule: control of electronic chattel paper. — A secured party has control of electronic chattel paper if a system employed
for evidencing the transfer of interests in the chattel paper reliably establishes the secured party as the person to which the chattel paper
was assigned.
(b) Specific facts giving control. — A system satisfies subsection (a) if the record or records comprising the chattel paper are created,
stored, and assigned in such a manner that:
(1) a single authoritative copy of the record or records exists which is unique, identifiable, and, except as otherwise provided in
paragraphs (4), (5), and (6), unalterable;
(2) the authoritative copy identifies the secured party as the assignee of the record or records;
(3) the authoritative copy is communicated to and maintained by the secured party or its designated custodian;
(4) copies or amendments that add or change an identified assignee of the authoritative copy can be made only with the consent
of the secured party;
(5) each copy of the authoritative copy and any copy of a copy is readily identifiable as a copy that is not the authoritative copy; and
(6) any amendment of the authoritative copy is readily identifiable as authorized or unauthorized.
(72 Del. Laws, c. 401, § 1; 79 Del. Laws, c. 15, § 5.)
§ 9-106. Control of investment property.
(a) Control under Section 8-106. — A person has control of a certificated security, uncertificated security, or security entitlement as
provided in Section 8-106.
(b) Control of commodity contract. — A secured party has control of a commodity contract if:
(1) the secured party is the commodity intermediary with which the commodity contract is carried; or
(2) the commodity customer, secured party, and commodity intermediary have agreed that the commodity intermediary will apply
any value distributed on account of the commodity contract as directed by the secured party without further consent by the commodity
customer.
(c) Effect of control of securities account or commodity account. — A secured party having control of all security entitlements or
commodity contracts carried in a securities account or commodity account has control over the securities account or commodity account.
(d) Control of securities account. — A secured party has control of a securities account if the name on the securities account is the
name of the secured party or indicates that the secured party has a security interest in the securities account.
(e) No implied duties of securities intermediary. — The naming of the securities account in the name of the secured party or with an
indication that the secured party has a security interest in the securities account under subsection (d) does not impose upon the securities
intermediary any duty not expressly agreed to by the securities intermediary.
(72 Del. Laws, c. 401, § 1; 76 Del. Laws, c. 92, § 3.)
§ 9-107. Control of letter-of-credit right.
A secured party has control of a letter-of-credit right to the extent of any right to payment or performance by the issuer or any nominated
person if the issuer or nominated person has consented to an assignment of proceeds of the letter of credit under Section 5-114(c) or
otherwise applicable law or practice.
(72 Del. Laws, c. 401, § 1.)
§ 9-108. Sufficiency of description.
(a) Sufficiency of description. — Except as otherwise provided in subsections (c), (d), and (e), a description of personal or real property
is sufficient, whether or not it is specific, if it reasonably identifies what is described.
(b) Examples of reasonable identification. — Except as otherwise provided in subsection (d), a description of collateral reasonably
identifies the collateral if it identifies the collateral by:
(1) specific listing;
(2) category;
(3) except as otherwise provided in subsection (e), a type of collateral defined in the Uniform Commercial Code;
(4) quantity;
(5) computational or allocational formula or procedure; or
(6) except as otherwise provided in subsection (c), any other method, if the identity of the collateral is objectively determinable.
(c) Supergeneric description not sufficient. — A description of collateral as “all the debtor’s assets” or “all the debtor’s personal
property” or using words of similar import does not reasonably identify the collateral.
(d) Investment property. — Except as otherwise provided in subsection (e), a description of a security entitlement, securities account,
or commodity account is sufficient if it describes:
(1) the collateral by those terms or as investment property; or
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(2) the underlying financial asset or commodity contract.
(e) When description by type insufficient. — A description only by type of collateral defined in the Uniform Commercial Code is an
insufficient description of:
(1) a commercial tort claim; or
(2) in a consumer transaction, consumer goods, a security entitlement, a securities account, or a commodity account.
(72 Del. Laws, c. 401, § 1.)
2. Applicability of Article
§ 9-109. Scope.
(a) General scope of Article. — Except as otherwise provided in subsections (c) and (d), this Article applies to:
(1) a transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract;
(2) an agricultural lien;
(3) a sale of accounts, chattel paper, payment intangibles, or promissory notes;
(4) a consignment;
(5) a security interest arising under Section 2-401, 2-505, 2-711(3), or 2A-508(5), as provided in Section 9-110; and
(6) a security interest arising under Section 4-210 or 5-118.
(b) Security interest in secured obligation. — The application of this Article to a security interest in a secured obligation is not affected
by the fact that the obligation is itself secured by a transaction or interest to which this Article does not apply.
(c) Extent to which Article does not apply. — This Article does not apply to the extent that:
(1) a statute, regulation, or treaty of the United States 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) 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) the rights of a transferee beneficiary or nominated person under a letter of credit are independent and superior under Section 5-114.
(d) Inapplicability of Article. — This Article does not apply to:
(1) a landlord’s lien, other than an agricultural lien;
(2) a lien, other than an agricultural lien, given by statute or other rule of law for services or materials, but Section 9-333 applies
with respect to priority of the lien;
(3) an assignment of a claim for wages, salary, or other compensation of an employee;
(4) a sale of accounts, chattel paper, payment intangibles, or promissory notes as part of a sale of the business out of which they arose;
(5) an assignment of accounts, chattel paper, payment intangibles, or promissory notes which is for the purpose of collection only;
(6) an assignment of a right to payment under a contract to an assignee that is also obligated to perform under the contract;
(7) an assignment of a single account, payment intangible, or promissory note to an assignee in full or partial satisfaction of a
preexisting indebtedness;
(8) a transfer of an interest in or an assignment of a claim under a policy of insurance, other than an assignment by or to a health-care
provider of a health-care-insurance receivable and any subsequent assignment of the right to payment, but Sections 9-315 and 9-322
apply with respect to proceeds and priorities in proceeds;
(9) an assignment of a right represented by a judgment, other than a judgment taken on a right to payment that was collateral;
(10) a right of recoupment or set-off, but:
(A) Section 9-340 applies with respect to the effectiveness of rights of recoupment or set-off against deposit accounts; and
(B) Section 9-404 applies with respect to defenses or claims of an account debtor;
(11) the creation or transfer of an interest in or lien on real property, including a lease or rents thereunder, except to the extent that
provision is made for:
(A) liens on real property in Sections 9-203 and 9-308;
(B) fixtures in Section 9-334;
(C) fixture filings in Sections 9-501, 9-502, 9-512, 9-516, and 9-519; and
(D) security agreements covering personal and real property in Section 9-604;
(12) an assignment of a claim arising in tort, other than a commercial tort claim, but Sections 9-315 and 9-322 apply with respect
to proceeds and priorities in proceeds; or
(13) an assignment of a deposit account in a consumer transaction, but Sections 9-315 and 9-322 apply with respect to proceeds
and priorities in proceeds.
(72 Del. Laws, c. 401, § 1.)
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§ 9-110. Security interests arising under Article 2 or 2A.
A security interest arising under Section 2-401, 2-505, 2-711(3), or 2A-508(5) is subject to this Article. However, until the debtor
obtains possession of the goods:
(1) the security interest is enforceable, even if Section 9-203(b)(3) has not been satisfied;
(2) filing is not required to perfect the security interest;
(3) the rights of the secured party after default by the debtor are governed by Article 2 or 2A; and
(4) the security interest has priority over a conflicting security interest created by the debtor.
(72 Del. Laws, c. 401, § 1.)
§ 9-111. Law governing creation, attachment and enforcement of security interests; characterizations; and
certain other rights.
(a) Law governing classification of collateral and creation, attachment and enforcement of security interests. — If a security agreement
is governed by the Laws of the State of Delaware, then those Laws shall govern, among other things:
(1) The classification of the collateral subject to that agreement; and
(2) The creation, attachment, validity and enforcement of the security interest.
(b) Law governing characterization of certain transactions. — If an agreement is governed by the Laws of the State of Delaware, then
those Laws shall govern, among other things:
(1) The characterization of a transaction subject to that agreement as (A) an interest in personal property or fixtures that secures
payment or performance of an obligation, or (B) a sale, lease, bailment or consignment; and
(2) The characterization of a transaction subject to that agreement as a securitization transaction for purposes of Chapter 27A of
this title.
(75 Del. Laws, c. 66, § 1.)
Part 2
Effectiveness of Security Agreement; Attachment of
Security Interest; Rights of Parties to Security Agreement
1 Effectiveness and Attachment
§ 9-201. General effectiveness of security agreement.
(a) General effectiveness. — Except as otherwise provided in the Uniform Commercial Code, a security agreement is effective according
to its terms between the parties, against purchasers of the collateral, and against creditors.
(b) Applicable consumer laws and other law. — A transaction subject to this Article is subject to any applicable rule of law which
establishes a different rule for consumers, to any other statute or regulation of this State that regulates the rates, charges, agreements and
practices for loans, credit sales, or other extensions of credit, and to any consumer-protection statute or regulation of this State.
(c) Other applicable law controls. — In case of conflict between this Article and a rule of law, statute, or regulation described in
subsection (b), the rule of law, statute, or regulation controls. Failure to comply with a statute or regulation described in subsection (b)
has only the effect the statute or regulation specifies.
(d) Further deference to other applicable law. — This Article does not:
(1) validate any rate, charge, agreement, or practice that violates a rule of law, statute, or regulation described in subsection (b); or
(2) extend the application of the rule of law, statute, or regulation to a transaction not otherwise subject to it.
(72 Del. Laws, c. 401, § 1.)
§ 9-202. Title to collateral immaterial.
Except as otherwise provided with respect to consignments or sales of accounts, chattel paper, payment intangibles, or promissory notes,
the provisions of this Article with regard to rights and obligations apply whether title to collateral is in the secured party or the debtor.
(72 Del. Laws, c. 401, § 1.)
§ 9-203. Attachment and enforceability of security interest; proceeds; supporting obligations; formal
requisites.
(a) Attachment. — A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral,
unless an agreement expressly postpones the time of attachment.
(b) Enforceability. — Except as otherwise provided in subsections (c) through (k), a security interest is enforceable against the debtor
and third parties with respect to the collateral only if:
(1) value has been given;
(2) the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and
(3) one of the following conditions is met:
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(A) the debtor has authenticated a security agreement that provides a description of the collateral and, if the security interest covers
timber to be cut, a description of the land concerned;
(B) the collateral is not a certificated security and is in the possession of the secured party under Section 9-313 pursuant to the
debtor’s security agreement;
(C) the collateral is a certificated security in registered form and the security certificate has been delivered to the secured party
under Section 8-301 pursuant to the debtor’s security agreement; or
(D) the collateral is deposit accounts, electronic chattel paper, investment property, letter-of-credit rights, or electronic documents,
and the secured party has control under Section 7-106, 9-104, 9-105, 9-106, or 9-107 pursuant to the debtor’s security agreement.
(c) Other UCC provisions. — Subsection (b) is subject to Section 4-210 on the security interest of a collecting bank, Section 5-118 on
the security interest of a letter-of-credit issuer or nominated person, Section 9-110 on a security interest arising under Article 2 or 2A,
and Section 9-206 on security interests in investment property.
(d) When person becomes bound by another person’s security agreement. — A person becomes bound as debtor by a security agreement
entered into by another person if, by operation of law other than this Article or by contract:
(1) the security agreement becomes effective to create a security interest in the person’s property; or
(2) the person becomes generally obligated for the obligations of the other person, including the obligation secured under the security
agreement, and acquires or succeeds to all or substantially all of the assets of the other person.
(e) Effect of new debtor becoming bound. — If a new debtor becomes bound as debtor by a security agreement entered into by another
person:
(1) the agreement satisfies subsection (b)(3) with respect to existing or after-acquired property of the new debtor to the extent the
property is described in the agreement; and
(2) another agreement is not necessary to make a security interest in the property enforceable.
(f) Proceeds and supporting obligations. — The attachment of a security interest in collateral gives the secured party the rights to
proceeds provided by Section 9-315 and is also attachment of a security interest in a supporting obligation for the collateral.
(g) Lien securing right to payment. — The attachment of a security interest in a right to payment or performance secured by a security
interest or other lien on personal or real property is also attachment of a security interest in the security interest, mortgage, or other lien.
(h) Security entitlement carried in securities account. — The attachment of a security interest in a securities account is also attachment
of a security interest in the security entitlements carried in the securities account.
(i) Commodity contracts carried in commodity account. — The attachment of a security interest in a commodity account is also
attachment of a security interest in the commodity contracts carried in the commodity account.
(j) Authentication of security agreement made by a trust or trustee. — For purposes of subsection (b)(3)(A), if the debtor is a trust
(including a trust that is a registered organization) or a trustee acting with respect to property held in trust, the security agreement is
properly authenticated if authenticated in the name of either the trust or the trustee by a person authorized to bind the debtor.
(k) Creation of security interest by a trust or trustee. — If the debtor is a trust (including a trust that is a registered organization) or
a trustee acting with respect to property held in trust, the debtor’s security agreement creates or provides for a security interest whether
created or provided for in the name of either the trust or the trustee.
(72 Del. Laws, c. 401, § 1; 74 Del. Laws, c. 332, §§ 46-48.)
§ 9-204. After-acquired property; future advances.
(a) After-acquired collateral. — Except as otherwise provided in subsection (b), a security agreement may create or provide for a
security interest in after-acquired collateral.
(b) When after-acquired property clause not effective. — A security interest does not attach under a term constituting an after-acquired
property clause to:
(1) consumer goods, other than an accession when given as additional security, unless the debtor acquires rights in them within 10
days after the secured party gives value; or
(2) a commercial tort claim.
(c) Future advances and other value. — A security agreement may provide that collateral secures, or that accounts, chattel paper,
payment intangibles, or promissory notes are sold in connection with, future advances or other value, whether or not the advances or
value are given pursuant to commitment.
(72 Del. Laws, c. 401, § 1.)
§ 9-205. Use or disposition of collateral permissible.
(a) When security interest not invalid or fraudulent. — A security interest is not invalid or fraudulent against creditors solely because:
(1) the debtor has the right or ability to:
(A) use, commingle, or dispose of all or part of the collateral, including returned or repossessed goods;
(B) collect, compromise, enforce, or otherwise deal with collateral;
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(C) accept the return of collateral or make repossessions; or
(D) use, commingle, or dispose of proceeds; or
(2) the secured party fails to require the debtor to account for proceeds or replace collateral.
(b) Requirements of possession not relaxed. — This section does not relax the requirements of possession if attachment, perfection, or
enforcement of a security interest depends upon possession of the collateral by the secured party.
(72 Del. Laws, c. 401, § 1.)
§ 9-206. Security interest arising in purchase or delivery of financial asset.
(a) Security interest when person buys through securities intermediary. — A security interest in favor of a securities intermediary
attaches to a person’s security entitlement if:
(1) the person buys a financial asset through the securities intermediary in a transaction in which the person is obligated to pay the
purchase price to the securities intermediary at the time of the purchase; and
(2) the securities intermediary credits the financial asset to the buyer’s securities account before the buyer pays the securities
intermediary.
(b) Security interest secures obligation to pay for financial asset. — The security interest described in subsection (a) secures the person’s
obligation to pay for the financial asset.
(c) Security interest in payment against delivery transaction. — A security interest in favor of a person that delivers a certificated
security or other financial asset represented by a writing attaches to the security or other financial asset if:
(1) the security or other financial asset:
(A) in the ordinary course of business is transferred by delivery with any necessary endorsement or assignment; and
(B) is delivered under an agreement between persons in the business of dealing with such securities or financial assets; and
(2) the agreement calls for delivery against payment.
(d) Security interest secures obligation to pay for delivery. — The security interest described in subsection (c) secures the obligation
to make payment for the delivery.
(72 Del. Laws, c. 401, § 1.)
2 Rights and Duties
§ 9-207. Rights and duties of secured party having possession or control of collateral.
(a) Duty of care when secured party in possession. — Except as otherwise provided in subsection (d), a secured party shall use reasonable
care in the custody and preservation of collateral in the secured party’s possession. In the case of chattel paper or an instrument, reasonable
care includes taking necessary steps to preserve rights against prior parties unless otherwise agreed.
(b) Expenses, risks, duties, and rights when secured party in possession. — Except as otherwise provided in subsection (d), if a secured
party has possession of collateral:
(1) reasonable expenses, including the cost of insurance and payment of taxes or other charges, incurred in the custody, preservation,
use, or operation of the collateral are chargeable to the debtor and are secured by the collateral;
(2) the risk of accidental loss or damage is on the debtor to the extent of a deficiency in any effective insurance coverage;
(3) the secured party shall keep the collateral identifiable, but fungible collateral may be commingled; and
(4) the secured party may use or operate the collateral:
(A) for the purpose of preserving the collateral or its value;
(B) as permitted by an order of a court having competent jurisdiction; or
(C) except in the case of consumer goods, in the manner and to the extent agreed by the debtor.
(c) Duties and rights when secured party in possession or control. — Except as otherwise provided in subsection (d), a secured party
having possession of collateral or control of collateral under Section 7-106, 9-104, 9-105, 9-106, or 9-107:
(1) may hold as additional security any proceeds, except money or funds, received from the collateral;
(2) shall apply money or funds received from the collateral to reduce the secured obligation, unless remitted to the debtor; and
(3) may create a security interest in the collateral.
(d) Buyer of certain rights to payment. — If the secured party is a buyer of accounts, chattel paper, payment intangibles, or promissory
notes or a consignor:
(1) subsection (a) does not apply unless the secured party is entitled under an agreement:
(A) to charge back uncollected collateral; or
(B) otherwise to full or limited recourse against the debtor or a secondary obligor based on the nonpayment or other default of
an account debtor or other obligor on the collateral; and
(2) subsections (b) and (c) do not apply.
(72 Del. Laws, c. 401, § 1; 74 Del. Laws, c. 332, § 49.)
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§ 9-208. Additional duties of secured party having control of collateral.
(a) Applicability of section. — This section applies to cases in which there is no outstanding secured obligation and the secured party
is not committed to make advances, incur obligations, or otherwise give value.
(b) Duties of secured party after receiving demand from debtor. — Within 10 days after receiving an authenticated demand by the debtor:
(1) a secured party having control of a deposit account under Section 9-104(a)(2) shall send to the bank with which the deposit account
is maintained an authenticated statement that releases the bank from any further obligation to comply with instructions originated by
the secured party;
(2) a secured party having control of a deposit account under Section 9-104(a)(3) shall:
(A) pay the debtor the balance on deposit in the deposit account; or
(B) transfer the balance on deposit into a deposit account in the debtor’s name;
(3) a secured party, other than a buyer, having control of electronic chattel paper under Section 9-105 shall:
(A) communicate the authoritative copy of the electronic chattel paper to the debtor or its designated custodian;
(B) if the debtor designates a custodian that is the designated custodian with which the authoritative copy of the electronic chattel
paper is maintained for the secured party, communicate to the custodian an authenticated record releasing the designated custodian
from any further obligation to comply with instructions originated by the secured party and instructing the custodian to comply with
instructions originated by the debtor; and
(C) take appropriate action to enable the debtor or its designated custodian to make copies of or revisions to the authoritative copy
which add or change an identified assignee of the authoritative copy without the consent of the secured party;
(4) a secured party having control of investment property under Section 8-106(d)(2) or 9-106(b) shall send to the securities
intermediary or commodity intermediary with which the security entitlement or commodity contract is maintained an authenticated
record that releases the securities intermediary or commodity intermediary from any further obligation to comply with entitlement
orders or directions originated by the secured party;
(5) a secured party having control of a letter-of-credit right under Section 9-107 shall send to each person having an unfulfilled
obligation to pay or deliver proceeds of the letter of credit to the secured party an authenticated release from any further obligation to
pay or deliver proceeds of the letter of credit to the secured party; and
(6) a secured party having control of an electronic document shall:
(A) give control of the electronic document to the debtor or its designated custodian;
(B) if the debtor designates a custodian that is the designated custodian with which the authoritative copy of the electronic document
is maintained for the secured party, communicate to the custodian an authenticated record releasing the designated custodian from
any further obligation to comply with instructions originated by the secured party and instructing the custodian to comply with
instructions originated by the debtor; and
(C) take appropriate action to enable the debtor or its designated custodian to make copies of or revisions to the authoritative copy
which add or change an identified assignee of the authoritative copy without the consent of the secured party.
(72 Del. Laws, c. 401, § 1; 74 Del. Laws, c. 332, § 50.)
§ 9-209. Duties of secured party if account debtor has been notified of assignment.
(a) Applicability of section. — Except as otherwise provided in subsection (c), this section applies if:
(1) there is no outstanding secured obligation; and
(2) the secured party is not committed to make advances, incur obligations, or otherwise give value.
(b) Duties of secured party after receiving demand from debtor. — Within 10 days after receiving an authenticated demand by the
debtor, a secured party shall send to an account debtor that has received notification of an assignment to the secured party as assignee
under Section 9-406(a) an authenticated record that releases the account debtor from any further obligation to the secured party.
(c) Inapplicability to sales. — This section does not apply to an assignment constituting the sale of an account, chattel paper, or payment
intangible.
(72 Del. Laws, c. 401, § 1.)
§ 9-210. Request for accounting; request regarding list of collateral or statement of account.
(a) Definitions. — In this section:
(1) “Request” means a record of a type described in paragraph (2), (3), or (4).
(2) “Request for an accounting” means a record authenticated by a debtor requesting that the recipient provide an accounting of the
unpaid obligations secured by collateral and reasonably identifying the transaction or relationship that is the subject of the request.
(3) “Request regarding a list of collateral” means a record authenticated by a debtor requesting that the recipient approve or correct
a list of what the debtor believes to be the collateral securing an obligation and reasonably identifying the transaction or relationship
that is the subject of the request.
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(4) “Request regarding a statement of account” means a record authenticated by a debtor requesting that the recipient approve or
correct a statement indicating what the debtor believes to be the aggregate amount of unpaid obligations secured by collateral as of a
specified date and reasonably identifying the transaction or relationship that is the subject of the request.
(b) Duty to respond to requests. — Subject to subsections (c), (d), (e), and (f), a secured party, other than a buyer of accounts, chattel
paper, payment intangibles, or promissory notes or a consignor, shall comply with a request within 14 days after receipt:
(1) in the case of a request for an accounting, by authenticating and sending to the debtor an accounting; and
(2) in the case of a request regarding a list of collateral or a request regarding a statement of account, by authenticating and sending
to the debtor an approval or correction.
(c) Request regarding list of collateral; statement concerning type of collateral. — A secured party that claims a security interest in all
of a particular type of collateral owned by the debtor may comply with a request regarding a list of collateral by sending to the debtor an
authenticated record including a statement to that effect within 14 days after receipt.
(d) Request regarding list of collateral; no interest claimed. — A person that receives a request regarding a list of collateral, claims
no interest in the collateral when it receives the request, and claimed an interest in the collateral at an earlier time shall comply with the
request within 14 days after receipt by sending to the debtor an authenticated record:
(1) disclaiming any interest in the collateral; and
(2) if known to the recipient, providing the name and mailing address of any assignee of or successor to the recipient’s interest in
the collateral.
(e) Request for accounting or regarding statement of account; no interest in obligation claimed. — A person that receives a request
for an accounting or a request regarding a statement of account, claims no interest in the obligations when it receives the request, and
claimed an interest in the obligations at an earlier time shall comply with the request within 14 days after receipt by sending to the debtor
an authenticated record:
(1) disclaiming any interest in the obligations; and
(2) if known to the recipient, providing the name and mailing address of any assignee of or successor to the recipient’s interest in
the obligations.
(f) Charges for responses. — A debtor is entitled without charge to one response to a request under this section during any six-month
period. The secured party may require payment of a charge not exceeding $25 for each additional response.
(72 Del. Laws, c. 401, § 1.)
Part 3
Perfection and Priority
1 Law Governing Perfection and Priority
§ 9-301. Law governing perfection and priority of security interests.
Except as otherwise provided in Sections 9-303 through 9-306, the following rules determine the law governing perfection, the effect
of perfection or nonperfection, and the priority of a security interest in collateral:
(1) Except as otherwise provided in this section, while a debtor is located in a jurisdiction, the local law of that jurisdiction governs
perfection, the effect of perfection or nonperfection, and the priority of a security interest in collateral.
(2) While collateral is located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection or
nonperfection, and the priority of a possessory security interest in that collateral.
(3) Except as otherwise provided in paragraph (4), while tangible negotiable documents, goods, instruments, money, or tangible
chattel paper is located in a jurisdiction, the local law of that jurisdiction governs:
(A) perfection of a security interest in the goods by filing a fixture filing;
(B) perfection of a security interest in timber to be cut; and
(C) the effect of perfection or nonperfection and the priority of a nonpossessory security interest in the collateral.
(4) The local law of the jurisdiction in which the wellhead or minehead is located governs perfection, the effect of perfection or
nonperfection, and the priority of a security interest in as-extracted collateral.
(72 Del. Laws, c. 401, § 1; 74 Del. Laws, c. 332, § 51.)
§ 9-302. Law governing perfection and priority of agricultural liens.
While farm products are located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection or
nonperfection, and the priority of an agricultural lien on the farm products.
(72 Del. Laws, c. 401, § 1.)
§ 9-303. Law governing perfection and priority of security interests in goods covered by a certificate of title.
(a) Applicability of section. — This section applies to goods covered by a certificate of title, even if there is no other relationship between
the jurisdiction under whose certificate of title the goods are covered and the goods or the debtor.
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(b) When goods covered by certificate of title. — Goods become covered by a certificate of title when a valid application for the
certificate of title and the applicable fee are delivered to the appropriate authority. Goods cease to be covered by a certificate of title at
the earlier of the time the certificate of title ceases to be effective under the law of the issuing jurisdiction or the time the goods become
covered subsequently by a certificate of title issued by another jurisdiction.
(c) Applicable law. — The local law of the jurisdiction under whose certificate of title the goods are covered governs perfection, the
effect of perfection or nonperfection, and the priority of a security interest in goods covered by a certificate of title from the time the
goods become covered by the certificate of title until the goods cease to be covered by the certificate of title.
(72 Del. Laws, c. 401, § 1.)
§ 9-304. Law governing perfection and priority of security interests in deposit accounts.
(a) Law of bank’s jurisdiction governs. — The local law of a bank’s jurisdiction governs perfection, the effect of perfection or
nonperfection, and the priority of a security interest in a deposit account maintained with that bank.
(b) Bank’s jurisdiction. — The following rules determine a bank’s jurisdiction for purposes of this part:
(1) If an agreement between the bank and the debtor governing the deposit account expressly provides that a particular jurisdiction is
the bank’s jurisdiction for purposes of this part, this Article, or the Uniform Commercial Code, that jurisdiction is the bank’s jurisdiction.
(2) If paragraph (1) does not apply and an agreement between the bank and its customer governing the deposit account expressly
provides that the agreement is governed by the law of a particular jurisdiction, that jurisdiction is the bank’s jurisdiction.
(3) If neither paragraph (1) nor paragraph (2) applies and an agreement between the bank and its customer governing the deposit
account expressly provides that the deposit account is maintained at an office in a particular jurisdiction, that jurisdiction is the bank’s
jurisdiction.
(4) If none of the preceding paragraphs applies, the bank’s jurisdiction is the jurisdiction in which the office identified in an account
statement as the office serving the customer’s account is located.
(5) If none of the preceding paragraphs applies, the bank’s jurisdiction is the jurisdiction in which the chief executive office of the
bank is located.
(72 Del. Laws, c. 401, § 1.)
§ 9-305. Law governing perfection and priority of security interests in investment property.
(a) Governing law: general rules. — Except as otherwise provided in subsection (c), the following rules apply:
(1) While a security certificate is located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection
or nonperfection, and the priority of a security interest in the certificated security represented thereby.
(2) The local law of the issuer’s jurisdiction as specified in Section 8-110(d) governs perfection, the effect of perfection or
nonperfection, and the priority of a security interest in an uncertificated security.
(3) The local law of the securities intermediary’s jurisdiction as specified in Section 8-110(e) governs perfection, the effect of
perfection or nonperfection, and the priority of a security interest in a security entitlement or securities account.
(4) The local law of the commodity intermediary’s jurisdiction governs perfection, the effect of perfection or nonperfection, and the
priority of a security interest in a commodity contract or commodity account.
(b) Commodity intermediary’s jurisdiction. — The following rules determine a commodity intermediary’s jurisdiction for purposes
of this part:
(1) If an agreement between the commodity intermediary and commodity customer governing the commodity account expressly
provides that a particular jurisdiction is the commodity intermediary’s jurisdiction for purposes of this part, this Article, or the Uniform
Commercial Code, that jurisdiction is the commodity intermediary’s jurisdiction.
(2) If paragraph (1) does not apply and an agreement between the commodity intermediary and commodity customer governing the
commodity account expressly provides that the agreement is governed by the law of a particular jurisdiction, that jurisdiction is the
commodity intermediary’s jurisdiction.
(3) If neither paragraph (1) nor paragraph (2) applies and an agreement between the commodity intermediary and commodity
customer governing the commodity account expressly provides that the commodity account is maintained at an office in a particular
jurisdiction, that jurisdiction is the commodity intermediary’s jurisdiction.
(4) If none of the preceding paragraphs applies, the commodity intermediary’s jurisdiction is the jurisdiction in which the office
identified in an account statement as the office serving the commodity customer’s account is located.
(5) If none of the preceding paragraphs applies, the commodity intermediary’s jurisdiction is the jurisdiction in which the chief
executive office of the commodity intermediary is located.
(c) When perfection governed by law of jurisdiction where debtor located. — The local law of the jurisdiction in which the debtor
is located governs:
(1) perfection of a security interest in investment property by filing;
(2) automatic perfection of a security interest in investment property created by a broker or securities intermediary; and
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(3) automatic perfection of a security interest in a commodity contract or commodity account created by a commodity intermediary.
(72 Del. Laws, c. 401, § 1.)
§ 9-306. Law governing perfection and priority of security interests in letter-of-credit rights.
(a) Governing law: issuer’s or nominated person’s jurisdiction. — Subject to subsection (c), the local law of the issuer’s jurisdiction
or a nominated person’s jurisdiction governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in
a letter-of-credit right if the issuer’s jurisdiction or nominated person’s jurisdiction is a State.
(b) Issuer’s or nominated person’s jurisdiction. — For purposes of this part, an issuer’s jurisdiction or nominated person’s jurisdiction
is the jurisdiction whose law governs the liability of the issuer or nominated person with respect to the letter-of-credit right as provided
in Section 5-116.
(c) When section not applicable. — This section does not apply to a security interest that is perfected only under Section 9-308(d).
(72 Del. Laws, c. 401, § 1.)
§ 9-307. Location of debtor.
(a) “Place of business.” — In this section, “place of business” means a place where a debtor conducts its affairs.
(b) Debtor’s location: general rules. — Except as otherwise provided in this section, the following rules determine a debtor’s location:
(1) A debtor who is an individual is located at the individual’s principal residence.
(2) A debtor that is an organization and has only one place of business is located at its place of business.
(3) A debtor that is an organization and has more than one place of business is located at its chief executive office.
(c) Limitation of applicability of subsection (b). — Subsection (b) applies only if a debtor’s residence, place of business, or chief
executive office, as applicable, is located in a jurisdiction whose law generally requires information concerning the existence of a
nonpossessory security interest to be made generally available in a filing, recording, or registration system as a condition or result of the
security interest’s obtaining priority over the rights of a lien creditor with respect to the collateral. If subsection (b) does not apply, the
debtor is located in the District of Columbia.
(d) Continuation of location: cessation of existence, etc. — A person that ceases to exist, have a residence, or have a place of business
continues to be located in the jurisdiction specified by subsections (b) and (c).
(e) Location of registered organization organized under State law. — A registered organization that is organized under the law of a
State is located in that State.
(f) Location of registered organization organized under federal law; bank branches and agencies. — Except as otherwise provided in
subsection (i), a registered organization that is organized under the law of the United States and a branch or agency of a bank that is not
organized under the law of the United States or a State are located:
(1) in the State that the law of the United States designates, if the law designates a State of location;
(2) in the State that the registered organization, branch, or agency designates, if the law of the United States authorizes the registered
organization, branch, or agency to designate its State of location, including by designating its main office, home office, or other
comparable office; or
(3) in the District of Columbia, if neither paragraph (1) nor paragraph (2) applies.
For purposes of paragraph (2) above, if a registered organization designates a main office, a home office, or other comparable office
in accordance with the law of the United States, such registered organization is located in the State that such main office, home office,
or other comparable office is located.
(g) Continuation of location: change in status of registered organization. — A registered organization continues to be located in the
jurisdiction specified by subsection (e) or (f) notwithstanding:
(1) the suspension, revocation, forfeiture, or lapse of the registered organization’s status as such in its jurisdiction of organization; or
(2) the dissolution, winding up, or cancellation of the existence of the registered organization.
(h) Location of United States. — The United States is located in the District of Columbia.
(i) Location of foreign bank branch or agency if licensed in only one State. — A branch or agency of a bank that is not organized under
the law of the United States or a State is located in the State in which the branch or agency is licensed, if all branches and agencies of
the bank are licensed in only one State.
(j) Location of foreign air carrier. — A foreign air carrier under the Federal Aviation Act of 1958 [see now 49 U.S.C. § 40101 et seq.],
as amended, is located at the designated office of the agent upon which service of process may be made on behalf of the carrier.
(k) Location of trusts and trustees. — A debtor that is a trust that is a registered organization is located in the jurisdiction of the trust
specified by subsection (e) or (f). A debtor that is a trust that is not a registered organization is located in the jurisdiction of the trust
specified by subsection (b)(2) or (b)(3). A debtor that is a trustee acting with respect to property held in trust is located in the jurisdiction
of the trustee specified by subsection (b), (e), (f) or (i).
(l) Section applies only to this part. — This section applies only for purposes of this part.
(72 Del. Laws, c. 401, § 1; 74 Del. Laws, c. 332, § 52; 79 Del. Laws, c. 15, § 6.)
2 Perfection
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§ 9-308. When security interest or agricultural lien is perfected; continuity of perfection.
(a) Perfection of security interest. — Except as otherwise provided in this section and Section 9-309, a security interest is perfected if it
has attached and all of the applicable requirements for perfection in Sections 9-310 through 9-316 have been satisfied. A security interest
is perfected when it attaches if the applicable requirements are satisfied before the security interest attaches.
(b) Perfection of agricultural lien. — An agricultural lien is perfected if it has become effective and all of the applicable requirements for
perfection in Section 9-310 have been satisfied. An agricultural lien is perfected when it becomes effective if the applicable requirements
are satisfied before the agricultural lien becomes effective.
(c) Continuous perfection; perfection by different methods. — A security interest or agricultural lien is perfected continuously if it is
originally perfected by one method under this Article and is later perfected by another method under this Article, without an intermediate
period when it was unperfected.
(d) Supporting obligation. — Perfection of a security interest in collateral also perfects a security interest in a supporting obligation
for the collateral.
(e) Lien securing right to payment. — Perfection of a security interest in a right to payment or performance also perfects a security
interest in a security interest, mortgage, or other lien on personal or real property securing the right.
(f) Security entitlement carried in securities account. — Perfection of a security interest in a securities account also perfects a security
interest in the security entitlements carried in the securities account.
(g) Commodity contract carried in commodity account. — Perfection of a security interest in a commodity account also perfects a
security interest in the commodity contracts carried in the commodity account.
(72 Del. Laws, c. 401, § 1.)
§ 9-309. Security interest perfected upon attachment.
The following security interests are perfected when they attach:
(1) a purchase-money security interest in consumer goods, except as otherwise provided in Section 9-311(b) with respect to consumer
goods that are subject to a statute or treaty described in Section 9-311(a);
(2) an assignment of accounts or payment intangibles which does not by itself or in conjunction with other assignments to the same
assignee transfer a significant part of the assignor’s outstanding accounts or payment intangibles;
(3) a sale of a payment intangible;
(4) a sale of a promissory note;
(5) a security interest created by the assignment of a health-care-insurance receivable to the provider of the health-care goods or
services;
(6) a security interest arising under Section 2-401, 2-505, 2-711(3), or 2A-508(5), until the debtor obtains possession of the collateral;
(7) a security interest of a collecting bank arising under Section 4-210;
(8) a security interest of an issuer or nominated person arising under Section 5-118;
(9) a security interest arising in the delivery of a financial asset under Section 9-206(c);
(10) a security interest in investment property created by a broker or securities intermediary;
(11) a security interest in a commodity contract or a commodity account created by a commodity intermediary;
(12) an assignment for the benefit of all creditors of the transferor and subsequent transfers by the assignee thereunder; and
(13) a security interest created by an assignment of a beneficial interest in a decedent’s estate.
(72 Del. Laws, c. 401, § 1.)
§ 9-310. When filing required to perfect security interest or agricultural lien; security interests and
agricultural liens to which filing provisions do not apply.
(a) General rule: perfection by filing. — Except as otherwise provided in subsection (b) and Section 9-312(b), a financing statement
must be filed to perfect all security interests and agricultural liens.
(b) Exceptions: filing not necessary. — The filing of a financing statement is not necessary to perfect a security interest:
(1) that is perfected under Section 9-308(d), (e), (f), or (g);
(2) that is perfected under Section 9-309 when it attaches;
(3) in property subject to a statute, regulation, or treaty described in Section 9-311(a);
(4) in goods in possession of a bailee which is perfected under Section 9-312(d)(1) or (2);
(5) in certificated securities, documents, goods, or instruments which is perfected without filing, control, or possession under Section
9-312(e), (f), or (g);
(6) in collateral in the secured party’s possession under Section 9-313;
(7) in a certificated security which is perfected by delivery of the security certificate to the secured party under Section 9-313;
(8) in deposit accounts, electronic chattel paper, electronic documents, investment property, or letter-of-credit rights which is
perfected by control under Section 9-314;
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(9) in proceeds which is perfected under Section 9-315; or
(10) that is perfected under Section 9-316.
(c) Assignment of perfected security interest. — If a secured party assigns a perfected security interest or agricultural lien, a filing
under this Article is not required to continue the perfected status of the security interest against creditors of and transferees from the
original debtor.
(72 Del. Laws, c. 401, § 1; 74 Del. Laws, c. 332, §§ 53, 54.)
§ 9-311. Perfection of security interests in property subject to certain statutes, regulations, and treaties.
(a) Security interest subject to other law. — Except as otherwise provided in subsection (d), the filing of a financing statement is not
necessary or effective to perfect a security interest in property subject to:
(1) a statute, regulation, or treaty of the United States whose requirements for a security interest’s obtaining priority over the rights
of a lien creditor with respect to the property preempt Section 9-310(a);
(2) Subchapter II of Chapter 23 of Title 21, relating to the notation of liens and encumbrances on certificates of title for motor
vehicles; or
(3) a statute of another jurisdiction which provides for a security interest to be indicated on a certificate of title as a condition or
result of the security interest’s obtaining priority over the rights of a lien creditor with respect to the property.
(b) Compliance with other law. — Compliance with the requirements of a statute, regulation, or treaty described in subsection (a) for
obtaining priority over the rights of a lien creditor is equivalent to the filing of a financing statement under this Article. Except as otherwise
provided in subsection (d) and Sections 9-313 and 9-316(d) and (e) for goods covered by a certificate of title, a security interest in property
subject to a statute, regulation, or treaty described in subsection (a) may be perfected only by compliance with those requirements, and a
security interest so perfected remains perfected notwithstanding a change in the use or transfer of possession of the collateral.
(c) Duration and renewal of perfection. — Except as otherwise provided in subsection (d) and Section 9-316(d) and (e), duration and
renewal of perfection of a security interest perfected by compliance with the requirements prescribed by a statute, regulation, or treaty
described in subsection (a) are governed by the statute, regulation, or treaty. In other respects, the security interest is subject to this Article.
(d) Inapplicability to certain inventory. — During any period in which collateral subject to a statute specified in subsection (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 goods of that
kind, this section does not apply to a security interest in that collateral created by that person.
(72 Del. Laws, c. 401, § 1; 79 Del. Laws, c. 15, § 7.)
§ 9-312. Perfection of security interests in chattel paper, deposit accounts, documents, goods covered by
documents, instruments, investment property, letter-of-credit rights, and money; perfection by permissive
filing; temporary perfection without filing or transfer of possession.
(a) Perfection by filing permitted. — A security interest in chattel paper, negotiable documents, instruments, or investment property
may be perfected by filing.
(b) Control or possession of certain collateral. — Except as otherwise provided in Section 9-315(c) and (d) for proceeds:
(1) a security interest in a deposit account may be perfected only by control under Section 9-314;
(2) and except as otherwise provided in Section 9-308(d), a security interest in a letter-of-credit right may be perfected only by
control under Section 9-314; and
(3) a security interest in money may be perfected only by the secured party’s taking possession under Section 9-313.
(c) Goods covered by negotiable document. — While goods are in the possession of a bailee that has issued a negotiable document
covering the goods:
(1) a security interest in the goods may be perfected by perfecting a security interest in the document; and
(2) a security interest perfected in the document has priority over any security interest that becomes perfected in the goods by another
method during that time.
(d) Goods covered by nonnegotiable document. — While goods are in the possession of a bailee that has issued a nonnegotiable
document covering the goods, a security interest in the goods may be perfected by:
(1) issuance of a document in the name of the secured party;
(2) the bailee’s receipt of notification of the secured party’s interest; or
(3) filing as to the goods.
(e) Temporary perfection: new value. — A security interest in certificated securities, negotiable documents, or instruments is perfected
without filing or the taking of possession or control for a period of 20 days from the time it attaches to the extent that it arises for new
value given under an authenticated security agreement.
(f) Temporary perfection: goods or documents made available to debtor. — A perfected security interest in a negotiable document or
goods in possession of a bailee, other than one that has issued a negotiable document for the goods, remains perfected for 20 days without
filing if the secured party makes available to the debtor the goods or documents representing the goods for the purpose of:
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(1) ultimate sale or exchange; or
(2) loading, unloading, storing, shipping, transshipping, manufacturing, processing, or otherwise dealing with them in a manner
preliminary to their sale or exchange.
(g) Temporary perfection: delivery of security certificate or instrument to debtor. — A perfected security interest in a certificated
security or instrument remains perfected for 20 days without filing if the secured party delivers the security certificate or instrument to
the debtor for the purpose of:
(1) ultimate sale or exchange; or
(2) presentation, collection, enforcement, renewal, or registration of transfer.
(h) Expiration of temporary perfection. — After the 20-day period specified in subsection (e), (f), or (g) expires, perfection depends
upon compliance with this Article.
(72 Del. Laws, c. 401, § 1; 74 Del. Laws, c. 332, § 55.)
§ 9-313. When possession by or delivery to secured party perfects security interest without filing.
(a) Perfection by possession or delivery. — Except as otherwise provided in subsection (b), a secured party may perfect a security
interest in tangible negotiable documents, goods, instruments, money, or tangible chattel paper by taking possession of the collateral. A
secured party may perfect a security interest in certificated securities by taking delivery of the certificated securities under Section 8-301.
(b) Goods covered by certificate of title. — With respect to goods covered by a certificate of title issued by this State, a secured party
may perfect a security interest in the goods by taking possession of the goods only in the circumstances described in Section 9-316(d).
(c) Collateral in possession of person other than debtor. — With respect to collateral other than certificated securities and goods covered
by a document, a secured party takes possession of collateral in the possession of a person other than the debtor, the secured party, or a
lessee of the collateral from the debtor in the ordinary course of the debtor’s business, when:
(1) the person in possession authenticates a record acknowledging that it holds possession of the collateral for the secured party’s
benefit; or
(2) the person takes possession of the collateral after having authenticated a record acknowledging that it will hold possession of
collateral for the secured party’s benefit.
(d) Time of perfection by possession; continuation of perfection. — If perfection of a security interest depends upon possession of the
collateral by a secured party, perfection occurs no earlier than the time the secured party takes possession and continues only while the
secured party retains possession.
(e) Time of perfection by delivery; continuation of perfection. — A security interest in a certificated security in registered form is
perfected by delivery when delivery of the certificated security occurs under Section 8-301 and remains perfected by delivery until the
debtor obtains possession of the security certificate.
(f) Acknowledgment not required. — A person in possession of collateral is not required to acknowledge that it holds possession for
a secured party’s benefit.
(g) Effectiveness of acknowledgment; no duties or confirmation. — If a person acknowledges that it holds possession for the secured
party’s benefit:
(1) the acknowledgment is effective under subsection (c) or Section 8-301(a), even if the acknowledgment violates the rights of a
debtor; and
(2) unless the person otherwise agrees or law other than this Article otherwise provides, the person does not owe any duty to the
secured party and is not required to confirm the acknowledgment to another person.
(h) Secured party’s delivery to person other than debtor. — A secured party having possession of collateral does not relinquish
possession by delivering the collateral to a person other than the debtor or a lessee of the collateral from the debtor in the ordinary course
of the debtor’s business if the person was instructed before the delivery or is instructed contemporaneously with the delivery:
(1) to hold possession of the collateral for the secured party’s benefit; or
(2) to redeliver the collateral to the secured party.
(i) Effect of delivery under subsection (h); no duties or confirmation. — A secured party does not relinquish possession, even if a
delivery under subsection (h) violates the rights of a debtor. A person to which collateral is delivered under subsection (h) does not owe
any duty to the secured party and is not required to confirm the delivery to another person unless the person otherwise agrees or law
other than this Article otherwise provides.
(72 Del. Laws, c. 401, § 1; 74 Del. Laws, c. 332, § 56.)
§ 9-314. Perfection by control.
(a) Perfection by control. — A security interest in investment property, deposit accounts, letter-of-credit rights, electronic chattel paper,
or electronic documents may be perfected by control of the collateral under Section 7-106, 9-104, 9-105, 9-106, or 9-107.
(b) Specified collateral: time of perfection by control; continuation of perfection. — A security interest in deposit accounts, electronic
chattel paper, letter-of-credit rights, or electronic documents is perfected by control under Section 7-106, 9-104, 9-105, or 9-107 when
the secured party obtains control and remains perfected by control only while the secured party retains control.”
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(c) Investment property: time of perfection by control; continuation of perfection. — A security interest in investment property is
perfected by control under Section 9-106 from the time the secured party obtains control and remains perfected by control until:
(1) the secured party does not have control; and
(2) one of the following occurs:
(A) if the collateral is a certificated security, the debtor has or acquires possession of the security certificate;
(B) if the collateral is an uncertificated security, the issuer has registered or registers the debtor as the registered owner; or
(C) if the collateral is a security entitlement, the debtor is or becomes the entitlement holder.
(72 Del. Laws, c. 401, § 1; 74 Del. Laws, c. 332, §§ 57, 58.)
§ 9-315. Secured party’s rights on disposition of collateral and in proceeds.
(a) Disposition of collateral: continuation of security interest or agricultural lien; proceeds. — Except as otherwise provided in this
Article and in Section 2-403(2):
(1) a security interest or agricultural lien continues in collateral notwithstanding sale, lease, license, exchange, or other disposition
thereof unless the secured party authorized the disposition free of the security interest or agricultural lien; and
(2) a security interest attaches to any identifiable proceeds of collateral.
(b) When commingled proceeds identifiable. — Proceeds that are commingled with other property are identifiable proceeds:
(1) if the proceeds are goods, to the extent provided by Section 9-336; and
(2) if the proceeds are not goods, to the extent that the secured party identifies the proceeds by a method of tracing, including
application of equitable principles, that is permitted under law other than this Article with respect to commingled property of the type
involved.
(c) Perfection of security interest in proceeds. — A security interest in proceeds is a perfected security interest if the security interest
in the original collateral was perfected.
(d) Continuation of perfection. — A perfected security interest in proceeds becomes unperfected on the 21st day after the security
interest attaches to the proceeds unless:
(1) the following conditions are satisfied:
(A) a filed financing statement covers the original collateral;
(B) the proceeds are collateral in which a security interest may be perfected by filing in the office in which the financing statement
has been filed; and
(C) the proceeds are not acquired with cash proceeds;
(2) the proceeds are identifiable cash proceeds; or
(3) the security interest in the proceeds is perfected other than under subsection (c) when the security interest attaches to the proceeds
or within 20 days thereafter.
(e) When perfected security interest in proceeds becomes unperfected. — If a filed financing statement covers the original collateral, a
security interest in proceeds which remains perfected under subsection (d)(1) becomes unperfected at the later of:
(1) when the effectiveness of the filed financing statement lapses under Section 9-515 or is terminated under Section 9-513; or
(2) the 21st day after the security interest attaches to the proceeds.
(72 Del. Laws, c. 401, § 1.)
§ 9-316. Effect of change in governing law.
(a) General rule: effect on perfection of change in governing law. — A security interest perfected pursuant to the law of the jurisdiction
designated in Section 9-301(1) or 9-305(c) remains perfected until the earliest of:
(1) the time perfection would have ceased under the law of that jurisdiction;
(2) the expiration of four months after a change of the debtor’s location to another jurisdiction; or
(3) the expiration of one year after a transfer of collateral to a person that thereby becomes a debtor and is located in another
jurisdiction.
(b) Security interest perfected or unperfected under law of new jurisdiction. — If a security interest described in subsection (a) becomes
perfected under the law of the other jurisdiction before the earliest time or event described in that subsection, it remains perfected thereafter.
If the security interest does not become perfected under the law of the other jurisdiction before the earliest time or event, it becomes
unperfected and is deemed never to have been perfected as against a purchaser of the collateral for value.
(c) Possessory security interest in collateral moved to new jurisdiction. — A possessory security interest in collateral, other than goods
covered by a certificate of title and as-extracted collateral consisting of goods, remains continuously perfected if:
(1) the collateral is located in one jurisdiction and subject to a security interest perfected under the law of that jurisdiction;
(2) thereafter the collateral is brought into another jurisdiction; and
(3) upon entry into the other jurisdiction, the security interest is perfected under the law of the other jurisdiction.
(d) Goods covered by certificate of title from this State. — Except as otherwise provided in subsection (e), a security interest in goods
covered by a certificate of title which is perfected by any method under the law of another jurisdiction when the goods become covered
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by a certificate of title from this State remains perfected until the security interest would have become unperfected under the law of the
other jurisdiction had the goods not become so covered.
(e) When subsection (d) security interests becomes unperfected against purchasers. — A security interest described in subsection (d)
becomes unperfected as against a purchaser of the goods for value and is deemed never to have been perfected as against a purchaser of
the goods for value if the applicable requirements for perfection under Section 9-311(b) or 9-313 are not satisfied before the earlier of:
(1) the time the security interest would have become unperfected under the law of the other jurisdiction had the goods not become
covered by a certificate of title from this State; or
(2) the expiration of four months after the goods had become so covered.
(f) Change in jurisdiction of bank, issuer, nominated person, securities intermediary, or commodity intermediary. — A security interest
in deposit accounts, letter-of-credit rights, or investment property which is perfected under the law of the bank’s jurisdiction, the issuer’s
jurisdiction, a nominated person’s jurisdiction, the securities intermediary’s jurisdiction, or the commodity intermediary’s jurisdiction,
as applicable, remains perfected until the earlier of:
(1) the time the security interest would have become unperfected under the law of that jurisdiction; or
(2) the expiration of four months after a change of the applicable jurisdiction to another jurisdiction.
(g) Subsection (f) security interest perfected or unperfected under law of new jurisdiction. — If a security interest described in subsection
(f) becomes perfected under the law of the other jurisdiction before the earlier of the time or the end of the period described in that
subsection, it remains perfected thereafter. If the security interest does not become perfected under the law of the other jurisdiction before
the earlier of that time or the end of that period, it becomes unperfected and is deemed never to have been perfected as against a purchaser
of the collateral for value.
(h) Effect on filed financing statement of change in governing law. — The following rules apply to collateral to which a security interest
attaches within four months after the debtor changes its location to another jurisdiction:
(1) A financing statement filed before the change pursuant to the law of the jurisdiction designated in Section 9-301(1) or 9-305(c) is
effective to perfect a security interest in the collateral if the financing statement would have been effective to perfect a security interest
in the collateral had the debtor not changed its location.
(2) If a security interest perfected by a financing statement that is effective under paragraph (1) becomes perfected under the law
of the other jurisdiction before the earlier of the time the financing statement would have become ineffective under the law of the
jurisdiction designated in Section 9-301(1) or 9-305(c) or the expiration of the four-month period, it remains perfected thereafter. If
the security interest does not become perfected under the law of the other jurisdiction before the earlier time or event, it becomes
unperfected and is deemed never to have been perfected as against a purchaser of the collateral for value.
(i) Effect of change in governing law on financing statement filed against original debtor. — If a financing statement naming an original
debtor is filed pursuant to the law of the jurisdiction designated in Section 9-301(1) or 9-305(c) and the new debtor is located in another
jurisdiction, the following rules apply:
(1) The financing statement is effective to perfect a security interest in collateral acquired by the new debtor before, and within four
months after, the new debtor becomes bound under Section 9-203(d), if the financing statement would have been effective to perfect
a security interest in the collateral had the collateral been acquired by the original debtor.
(2) A security interest perfected by the financing statement and which becomes perfected under the law of the other jurisdiction
before the earlier of the time the financing statement would have become ineffective under the law of the jurisdiction designated in
Section 9-301(1) or 9-305(c) or the expiration of the four-month period remains perfected thereafter. A security interest that is perfected
by the financing statement but which does not become perfected under the law of the other jurisdiction before the earlier time or event
becomes unperfected and is deemed never to have been perfected as against a purchaser of the collateral for value.
(72 Del. Laws, c. 401, § 1; 79 Del. Laws, c. 15, §§ 8, 9.)
3. Priority
§ 9-317. Interests that take priority over or take free of security interest or agricultural lien.
(a) Conflicting security interests and rights of lien creditors. — 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.
(b) Buyers that receive delivery. — Except as otherwise provided in subsection (e), a buyer, other than a secured party, of tangible chattel
paper, tangible documents, goods, instruments, or a certificated security takes free of a security interest or agricultural lien if the buyer
gives value and receives delivery of the collateral without knowledge of the security interest or agricultural lien and before it is perfected.
(c) Lessees that receive delivery. — Except as otherwise provided in subsection (e), a lessee of goods takes free of a security interest or
agricultural lien if the lessee gives value and receives delivery of the collateral without knowledge of the security interest or agricultural
lien and before it is perfected.
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(d) Licensees and buyers of certain collateral. — A licensee of a general intangible or a buyer, other than a secured party, of collateral
other than tangible chattel paper, tangible documents, goods, instruments, or a certificated security takes free of a security interest if the
licensee or buyer gives value without knowledge of the security interest and before it is perfected.
(e) Purchase-money security interest. — Except as otherwise provided in Sections 9-320 and 9-321, if a person files a financing
statement with respect to a purchase-money security interest before or within 20 days after the debtor receives delivery of the collateral,
the security interest takes priority over the rights of a buyer, lessee, or lien creditor which arise between the time the security interest
attaches and the time of filing.
(72 Del. Laws, c. 401, § 1; 74 Del. Laws, c. 332, §§ 59, 60; 79 Del. Laws, c. 15, §§ 10, 11.)
§ 9-318. No interest retained in right to payment that is sold; rights and title of seller of account or chattel
paper with respect to creditors and purchasers.
(a) Seller retains no interest. — A debtor that has sold an account, chattel paper, payment intangible, or promissory note does not retain
a legal or equitable interest in the collateral sold.
(b) Deemed rights of debtor if buyer’s security interest unperfected. For purposes of determining the rights of creditors of, and purchasers
for value of an account or chattel paper from, a debtor that has sold an account or chattel paper, while the buyer’s security interest is
unperfected, the debtor is deemed to have rights and title to the account or chattel paper identical to those the debtor sold.
(72 Del. Laws, c. 401, § 1.)
§ 9-319. Rights and title of consignee with respect to creditors and purchasers.
(a) Consignee has consignor’s rights. — Except as otherwise provided in subsection (b), for purposes of determining the rights of
creditors of, and purchasers for value of goods from, a consignee, while the goods are in the possession of the consignee, the consignee
is deemed to have rights and title to the goods identical to those the consignor had or had power to transfer.
(b) Applicability of other law. — For purposes of determining the rights of a creditor of a consignee, law other than this Article
determines the rights and title of a consignee while goods are in the consignee’s possession if, under this part, a perfected security interest
held by the consignor would have priority over the rights of the creditor.
(72 Del. Laws, c. 401, § 1.)
§ 9-320. Buyer of goods.
(a) Buyer in ordinary course of business. — Except as otherwise provided in subsection (e), a buyer in ordinary course of business,
other than a person buying farm products from a person engaged in farming operations, takes free of a security interest created by the
buyer’s seller, even if the security interest is perfected and the buyer knows of its existence.
(b) Buyer of consumer goods. — Except as otherwise provided in subsection (e), a buyer of goods from a person who used or bought the
goods for use primarily for personal, family, or household purposes takes free of a security interest, even if perfected, if the buyer buys:
(1) without knowledge of the security interest;
(2) for value;
(3) primarily for the buyer’s personal, family, or household purposes; and
(4) before the filing of a financing statement covering the goods.
(c) Effectiveness of filing for subsection (b). — To the extent that it affects the priority of a security interest over a buyer of goods
under subsection (b), the period of effectiveness of a filing made in the jurisdiction in which the seller is located is governed by Section
9-316(a) and (b).
(d) Buyer in ordinary course of business at wellhead or minehead. — A buyer in ordinary course of business buying oil, gas, or other
minerals at the wellhead or minehead or after extraction takes free of an interest arising out of an encumbrance.
(e) Possessory security interest not affected. — Subsections (a) and (b) do not affect a security interest in goods in the possession of
the secured party under Section 9-313.
(72 Del. Laws, c. 401, § 1.)
§ 9-321. Licensee of general intangible and lessee of goods in ordinary course of business.
(a) “Licensee in ordinary course of business.” — In this section, “licensee in ordinary course of business” means a person that becomes
a licensee of a general intangible in good faith, without knowledge that the license violates the rights of another person in the general
intangible, and in the ordinary course from a person in the business of licensing general intangibles of that kind. A person becomes a
licensee in the ordinary course if the license to the person comports with the usual or customary practices in the kind of business in which
the licensor is engaged or with the licensor’s own usual or customary practices.
(b) Rights of licensee in ordinary course of business. — A licensee in ordinary course of business takes its rights under a nonexclusive
license free of a security interest in the general intangible created by the licensor, even if the security interest is perfected and the licensee
knows of its existence.
(c) Rights of lessee in ordinary course of business. — A lessee in ordinary course of business takes its leasehold interest free of a
security interest in the goods created by the lessor, even if the security interest is perfected and the lessee knows of its existence.
(72 Del. Laws, c. 401, § 1.)
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§ 9-322. Priorities among conflicting security interests in and agricultural liens on same collateral.
(a) General priority rules. — Except as otherwise provided in this section, priority among conflicting security interests and agricultural
liens in the same collateral is determined according to the following rules:
(1) Conflicting perfected security interests and agricultural liens rank according to priority in time of filing or perfection. Priority
dates from the earlier of the time a filing covering the collateral is first made or the security interest or agricultural lien is first perfected,
if there is no period thereafter when there is neither filing nor perfection.
(2) A perfected security interest or agricultural lien has priority over a conflicting unperfected security interest or agricultural lien.
(3) The first security interest or agricultural lien to attach or become effective has priority if conflicting security interests and
agricultural liens are unperfected.
(b) Time of perfection: proceeds and supporting obligations. — For the purposes of subsection (a)(1):
(1) the time of filing or perfection as to a security interest in collateral is also the time of filing or perfection as to a security interest
in proceeds; and
(2) the time of filing or perfection as to a security interest in collateral supported by a supporting obligation is also the time of filing
or perfection as to a security interest in the supporting obligation.
(c) Special priority rules: proceeds and supporting obligations. — Except as otherwise provided in subsection (f), a security interest
in collateral which qualifies for priority over a conflicting security interest under Section 9-327, 9-328, 9-329, 9-330, or 9-331 also has
priority over a conflicting security interest in:
(1) any supporting obligation for the collateral; and
(2) proceeds of the collateral if:
(A) the security interest in proceeds is perfected;
(B) the proceeds are cash proceeds or of the same type as the collateral; and
(C) in the case of proceeds that are proceeds of proceeds, all intervening proceeds are cash proceeds, proceeds of the same type
as the collateral, or an account relating to the collateral.
(d) First-to-file priority rule for certain collateral. — Subject to subsection (e) and except as otherwise provided in subsection (f), if
a security interest in chattel paper, deposit accounts, negotiable documents, instruments, investment property, or letter-of-credit rights is
perfected by a method other than filing, conflicting perfected security interests in proceeds of the collateral rank according to priority
in time of filing.
(e) Applicability of subsection (d). — Subsection (d) applies only if the proceeds of the collateral are not cash proceeds, chattel paper,
negotiable documents, instruments, investment property, or letter-of-credit rights.
(f) Limitations on subsections (a) through (e). — Subsections (a) through (e) are subject to:
(1) subsection (g) and the other provisions of this part;
(2) Section 4-210 with respect to a security interest of a collecting bank;
(3) Section 5-118 with respect to a security interest of an issuer or nominated person; and
(4) Section 9-110 with respect to a security interest arising under Article 2 or 2A.
(g) Priority under agricultural lien statute. — A perfected agricultural lien on collateral has priority over a conflicting security interest
in or agricultural lien on the same collateral if the statute creating the agricultural lien so provides.
(72 Del. Laws, c. 401, § 1.)
§ 9-323. Future advances.
(a) When priority based on time of advance. — Except as otherwise provided in subsection (c), for purposes of determining the priority
of a perfected security interest under Section 9-322(a)(1), perfection of the security interest dates from the time an advance is made to
the extent that the security interest secures an advance that:
(1) is made while the security interest is perfected only:
(A) under Section 9-309 when it attaches; or
(B) temporarily under Section 9-312(e), (f), or (g); and
(2) is not made pursuant to a commitment entered into before or while the security interest is perfected by a method other than under
Section 9-309 or 9-312(e), (f), or (g).
(b) Lien creditor. — Except as otherwise provided in subsection (c), a security interest is subordinate to the rights of a person that
becomes a lien creditor to the extent that the security interest secures an advance made more than 45 days after the person becomes a
lien creditor unless the advance is made:
(1) without knowledge of the lien; or
(2) pursuant to a commitment entered into without knowledge of the lien.
(c) Buyer of receivables. — Subsections (a) and (b) do not apply to a security interest held by a secured party that is a buyer of accounts,
chattel paper, payment intangibles, or promissory notes or a consignor.
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(d) Buyer of goods. — Except as otherwise provided in subsection (e), a buyer of goods other than a buyer in ordinary course of business
takes free of a security interest to the extent that it secures advances made after the earlier of:
(1) the time the secured party acquires knowledge of the buyer’s purchase; or
(2) 45 days after the purchase.
(e) Advances made pursuant to commitment: priority of buyer of goods. — Subsection (d) does not apply if the advance is made pursuant
to a commitment entered into without knowledge of the buyer’s purchase and before the expiration of the 45-day period.
(f) Lessee of goods. — Except as otherwise provided in subsection (g), a lessee of goods, other than a lessee in ordinary course of
business, takes the leasehold interest free of a security interest to the extent that it secures advances made after the earlier of:
(1) the time the secured party acquires knowledge of the lease; or
(2) 45 days after the lease contract becomes enforceable.
(g) Advances made pursuant to commitment: priority of lessee of goods. — Subsection (f) does not apply if the advance is made pursuant
to a commitment entered into without knowledge of the lease and before the expiration of the 45-day period.
(72 Del. Laws, c. 401, § 1.)
§ 9-324. Priority of purchase-money security interests.
(a) General rule: purchase-money priority. — Except as otherwise provided in subsection (g), a perfected purchase-money security
interest in goods other than inventory or livestock that are farm products has priority over a conflicting security interest in the same
goods, and, except as otherwise provided in Section 9-327, a perfected security interest in its identifiable proceeds also has priority, if the
purchase-money security interest is perfected when the debtor receives possession of the collateral or within 20 days thereafter.
(b) Inventory purchase-money priority. — Subject to subsection (c) and except as otherwise provided in subsection (g), a perfected
purchase-money security interest in inventory has priority over a conflicting security interest in the same inventory, has priority over a
conflicting security interest in chattel paper or an instrument constituting proceeds of the inventory and in proceeds of the chattel paper,
if so provided in Section 9-330, and, except as otherwise provided in Section 9-327, also has priority in identifiable cash proceeds of the
inventory to the extent the identifiable cash proceeds are received on or before the delivery of the inventory to a buyer, if:
(1) the purchase-money security interest is perfected when the debtor receives possession of the inventory;
(2) the purchase-money secured party sends an authenticated notification to the holder of the conflicting security interest;
(3) the holder of the conflicting security interest receives the notification within five years before the debtor receives possession
of the inventory; and
(4) the notification states that the person sending the notification has or expects to acquire a purchase-money security interest in
inventory of the debtor and describes the inventory.
(c) Holders of conflicting inventory security interests to be notified. — Subsections (b)(2) through (4) apply only if the holder of the
conflicting security interest had filed a financing statement covering the same types of inventory:
(1) if the purchase-money security interest is perfected by filing, before the date of the filing; or
(2) if the purchase-money security interest is temporarily perfected without filing or possession under Section 9-312(e) or (f), before
the beginning of the 20-day period thereunder.
(d) Livestock purchase-money priority. — Subject to subsection (e) and except as otherwise provided in subsection (g), a perfected
purchase-money security interest in livestock that are farm products has priority over a conflicting security interest in the same livestock,
and, except as otherwise provided in Section 9-327, a perfected security interest in their identifiable proceeds and identifiable products
in their unmanufactured states also has priority, if:
(1) the purchase-money security interest is perfected when the debtor receives possession of the livestock;
(2) the purchase-money secured party sends an authenticated notification to the holder of the conflicting security interest;
(3) the holder of the conflicting security interest receives the notification within six months before the debtor receives possession
of the livestock; and
(4) the notification states that the person sending the notification has or expects to acquire a purchase-money security interest in
livestock of the debtor and describes the livestock.
(e) Holders of conflicting livestock security interests to be notified. — Subsections (d)(2) through (4) apply only if the holder of the
conflicting security interest had filed a financing statement covering the same types of livestock:
(1) if the purchase-money security interest is perfected by filing, before the date of the filing; or
(2) if the purchase-money security interest is temporarily perfected without filing or possession under Section 9-312(e) or (f), before
the beginning of the 20-day period thereunder.
(f) Software purchase-money priority. — Except as otherwise provided in subsection (g), a perfected purchase-money security interest
in software has priority over a conflicting security interest in the same collateral, and, except as otherwise provided in Section 9-327, a
perfected security interest in its identifiable proceeds also has priority, to the extent that the purchase-money security interest in the goods
in which the software was acquired for use has priority in the goods and proceeds of the goods under this section.
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(g) Conflicting purchase-money security interests. — If more than one security interest qualifies for priority in the same collateral under
subsection (a), (b), (d), or (f):
(1) a security interest securing an obligation incurred as all or part of the price of the collateral has priority over a security interest
securing an obligation incurred for value given to enable the debtor to acquire rights in or the use of collateral; and
(2) in all other cases, Section 9-322(a) applies to the qualifying security interests.
(72 Del. Laws, c. 401, § 1.)
§ 9-325. Priority of security interests in transferred collateral.
(a) Subordination of security interest in transferred collateral. — Except as otherwise provided in subsection (b), a security interest
created by a debtor is subordinate to a security interest in the same collateral created by another person if:
(1) the debtor acquired the collateral subject to the security interest created by the other person;
(2) the security interest created by the other person was perfected when the debtor acquired the collateral; and
(3) there is no period thereafter when the security interest is unperfected.
(b) Limitation of subsection (a) subordination. — Subsection (a) subordinates a security interest only if the security interest:
(1) otherwise would have priority solely under Section 9-322(a) or 9-324; or
(2) arose solely under Section 2-711(3) or 2A-508(5).
(72 Del. Laws, c. 401, § 1.)
§ 9-326. Priority of security interests created by new debtor.
(a) Subordination of security interest created by new debtor. — Subject to subsection (b), a security interest that is created by a new
debtor in collateral in which the new debtor has or acquires rights and is perfected solely by a filed financing statement that would be
ineffective to perfect the security interest but for the application of Section 9-316(i)(1) or 9-508 is subordinate to a security interest in the
same collateral which is perfected other than by such a filed financing statement.
(b) Priority under other provisions; multiple original debtors. — The other provisions of this part determine the priority among
conflicting security interests in the same collateral perfected by filed financing statements described in subsection (a). However, if the
security agreements to which a new debtor became bound as debtor were not entered into by the same original debtor, the conflicting
security interests rank according to priority in time of the new debtor’s having become bound.
(72 Del. Laws, c. 401, § 1; 79 Del. Laws, c. 15, § 12.)
§ 9-327. Priority of security interests in deposit account.
The following rules govern priority among conflicting security interests in the same deposit account:
(1) A security interest held by a secured party having control of the deposit account under Section 9-104 has priority over a conflicting
security interest held by a secured party that does not have control.
(2) Except as otherwise provided in paragraphs (3) and (4), security interests perfected by control under Section 9-314 rank according
to priority in time of obtaining control.
(3) Except as otherwise provided in paragraph (4), a security interest held by the bank with which the deposit account is maintained
has priority over a conflicting security interest held by another secured party.
(4) A security interest perfected by control under Section 9-104(a)(3) has priority over a security interest held by the bank with
which the deposit account is maintained.
(72 Del. Laws, c. 401, § 1.)
§ 9-328. Priority of security interests in investment property.
The following rules govern priority among conflicting security interests in the same investment property:
(1) A security interest held by a secured party having control of investment property under Section 9-106 has priority over a security
interest held by a secured party that does not have control of the investment property.
(2) Except as otherwise provided in paragraphs (3) and (4), conflicting security interests held by secured parties each of which has
control under Section 9-106 rank according to priority in time of:
(A) if the collateral is a security, obtaining control;
(B) if the collateral is a security entitlement carried in a securities account and:
(i) if the secured party obtained control under Section 8-106(d)(1), the secured party’s becoming the person for which the
securities account is maintained;
(ii) if the secured party obtained control under Section 8-106(d)(2), the securities intermediary’s agreement to comply with the
secured party’s entitlement orders with respect to security entitlements carried or to be carried in the securities account; or
(iii) if the secured party obtained control through another person under Section 8-106(d)(3), the time on which priority would
be based under this paragraph if the other person were the secured party; or
(C) if the collateral is a commodity contract carried with a commodity intermediary, the satisfaction of the requirement for control
specified in Section 9-106(b)(2) with respect to commodity contracts carried or to be carried with the commodity intermediary.
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(3) A security interest held by a securities intermediary in a security entitlement or a securities account maintained with the securities
intermediary has priority over a conflicting security interest held by another secured party.
(4) A security interest held by a commodity intermediary in a commodity contract or a commodity account maintained with the
commodity intermediary has priority over a conflicting security interest held by another secured party.
(5) A security interest in a certificated security in registered form which is perfected by taking delivery under Section 9-313(a) and
not by control under Section 9-314 has priority over a conflicting security interest perfected by a method other than control.
(6) Conflicting security interests created by a broker, securities intermediary, or commodity intermediary which are perfected without
control under Section 9-106 rank equally.
(7) In all other cases, priority among conflicting security interests in investment property is governed by Sections 9-322 and 9-323.
(72 Del. Laws, c. 401, § 1.)
§ 9-329. Priority of security interests in letter-of-credit right.
The following rules govern priority among conflicting security interests in the same letter-of-credit right:
(1) A security interest held by a secured party having control of the letter-of-credit right under Section 9-107 has priority to the extent
of its control over a conflicting security interest held by a secured party that does not have control.
(2) Security interests perfected by control under Section 9-314 rank according to priority in time of obtaining control.
(72 Del. Laws, c. 401, § 1.)
§ 9-330. Priority of purchaser of chattel paper or instrument.
(a) Purchaser’s priority: security interest claimed merely as proceeds. — A purchaser of chattel paper has priority over a security
interest in the chattel paper which is claimed merely as proceeds of inventory subject to a security interest if:
(1) in good faith and in the ordinary course of the purchaser’s business, the purchaser gives new value and takes possession of the
chattel paper or obtains control of the chattel paper under Section 9-105; and
(2) the chattel paper does not indicate that it has been assigned to an identified assignee other than the purchaser.
(b) Purchaser’s priority: other security interests. — A purchaser of chattel paper has priority over a security interest in the chattel
paper which is claimed other than merely as proceeds of inventory subject to a security interest if the purchaser gives new value and takes
possession of the chattel paper or obtains control of the chattel paper under Section 9-105 in good faith, in the ordinary course of the
purchaser’s business, and without knowledge that the purchase violates the rights of the secured party.
(c) Chattel paper purchaser’s priority in proceeds. — Except as otherwise provided in Section 9-327, a purchaser having priority in
chattel paper under subsection (a) or (b) also has priority in proceeds of the chattel paper to the extent that:
(1) Section 9-322 provides for priority in the proceeds; or
(2) the proceeds consist of the specific goods covered by the chattel paper or cash proceeds of the specific goods, even if the
purchaser’s security interest in the proceeds is unperfected.
(d) Instrument purchaser’s priority. — Except as otherwise provided in Section 9-331(a), a purchaser of an instrument has priority over
a security interest in the instrument perfected by a method other than possession if the purchaser gives value and takes possession of the
instrument in good faith and without knowledge that the purchase violates the rights of the secured party.
(e) Holder of purchase-money security interest gives new value. — For purposes of subsections (a) and (b), the holder of a purchasemoney security interest in inventory gives new value for chattel paper constituting proceeds of the inventory.
(f) Indication of assignment gives knowledge. — For purposes of subsections (b) and (d), if chattel paper or an instrument indicates that
it has been assigned to an identified secured party other than the purchaser, a purchaser of the chattel paper or instrument has knowledge
that the purchase violates the rights of the secured party.
(72 Del. Laws, c. 401, § 1.)
§ 9-331. Priority of rights of purchasers of instruments, documents, and securities under other articles;
priority of interests in financial assets and security entitlements under Article 8.
(a) Rights under Articles 3, 7, and 8 not limited. — This Article does not limit the rights of a holder in due course of a negotiable
instrument, a holder to which a negotiable document of title has been duly negotiated, or a protected purchaser of a security. These holders
or purchasers take priority over an earlier security interest, even if perfected, to the extent provided in Articles 3, 7, and 8.
(b) Protection under Article 8. — This Article does not limit the rights of or impose liability on a person to the extent that the person
is protected against the assertion of an adverse claim under Article 8.
(c) Filing not notice. — Filing under this Article does not constitute notice of a claim or defense to the holders, or purchasers, or persons
described in subsections (a) and (b).
(72 Del. Laws, c. 401, § 1.)
§ 9-332. Transfer of money; transfer of funds from deposit account.
(a) Transferee of money. — A transferee of money takes the money free of a security interest unless the transferee acts in collusion
with the debtor in violating the rights of the secured party.
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(b) Transferee of funds from deposit account. — A transferee of funds from a deposit account takes the funds free of a security interest
in the deposit account unless the transferee acts in collusion with the debtor in violating the rights of the secured party.
(72 Del. Laws, c. 401, § 1.)
§ 9-333. Priority of certain liens arising by operation of law.
(a) “Possessory lien.” — In this section, “possessory lien” means an interest, other than a security interest or an agricultural lien:
(1) which secures payment or performance of an obligation for services or materials furnished with respect to goods by a person
in the ordinary course of the person’s business;
(2) which is created by statute or rule of law in favor of the person; and
(3) whose effectiveness depends on the person’s possession of the goods.
(b) Priority of possessory lien. — A possessory lien on goods has priority over a security interest in the goods unless the lien is created
by a statute that expressly provides otherwise.
(72 Del. Laws, c. 401, § 1.)
§ 9-334. Priority of security interests in fixtures and crops.
(a) Security interest in fixtures under this Article. — A security interest under this Article may be created in goods that are fixtures or
may continue in goods that become fixtures. A security interest does not exist under this Article in ordinary building materials incorporated
into an improvement on land.
(b) Security interest in fixtures under real property law. — This Article does not prevent creation of an encumbrance upon fixtures
under real property law.
(c) General rule: subordination of security interest in fixtures. — In cases not governed by subsections (d) through (h), a security
interest in fixtures is subordinate to a conflicting interest of an encumbrancer or owner of the related real property other than the debtor.
(d) Fixtures purchase-money priority. — Except as otherwise provided in subsection (h), a perfected security interest in fixtures has
priority over a conflicting interest of an encumbrancer or owner of the real property if the debtor has an interest of record in or is in
possession of the real property and:
(1) the security interest is a purchase-money security interest;
(2) the interest of the encumbrancer or owner arises before the goods become fixtures; and
(3) the security interest is perfected by a fixture filing before the goods become fixtures or within 20 days thereafter.
(e) Priority of security interest in fixtures over interests in real property. — A perfected security interest in fixtures has priority over
a conflicting interest of an encumbrancer or owner of the real property if:
(1) the debtor has an interest of record in the real property or is in possession of the real property and the security interest:
(A) is perfected by a fixture filing before the interest of the encumbrancer or owner is of record; and
(B) has priority over any conflicting interest of a predecessor in title of the encumbrancer or owner;
(2) before the goods become fixtures, the security interest is perfected by any method permitted by this Article and the fixtures are
readily removable:
(A) factory or office machines;
(B) equipment that is not primarily used or leased for use in the operation of the real property; or
(C) replacements of domestic appliances that are consumer goods;
(3) the conflicting interest is a lien on the real property obtained by legal or equitable proceedings after the security interest was
perfected by any method permitted by this Article; or
(4) the security interest is:
(A) created in a manufactured home in a manufactured-home transaction; and
(B) perfected pursuant to a statute described in Section 9-311(a)(2).
(f) Priority based on consent, disclaimer, or right to remove. — A security interest in fixtures, whether or not perfected, has priority
over a conflicting interest of an encumbrancer or owner of the real property if:
(1) the encumbrancer or owner has, in an authenticated record, consented to the security interest or disclaimed an interest in the
goods as fixtures; or
(2) the debtor has a right to remove the goods as against the encumbrancer or owner.
(g) Continuation of subsection (f) priority. — The priority of the security interest under subsection (f) continues for a reasonable time
if the debtor’s right to remove the goods as against the encumbrancer or owner terminates.
(h) Priority of construction mortgage. — A mortgage is a construction mortgage to the extent that it secures an obligation incurred for
the construction of an improvement on land, including the acquisition cost of the land, if a recorded record of the mortgage so indicates.
Except as otherwise provided in subsections (e) and (f), a security interest in fixtures is subordinate to a construction mortgage if a record
of the mortgage is recorded before the goods become fixtures and the goods become fixtures before the completion of the construction. A
mortgage has this priority to the same extent as a construction mortgage to the extent that it is given to refinance a construction mortgage.
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(i) Priority of security interest in crops. — A perfected security interest in crops growing on real property has priority over a conflicting
interest of an encumbrancer or owner of the real property if the debtor has an interest of record in or is in possession of the real property.
(72 Del. Laws, c. 401, § 1.)
§ 9-335. Accessions.
(a) Creation of security interest in accession. — A security interest may be created in an accession and continues in collateral that
becomes an accession.
(b) Perfection of security interest. — If a security interest is perfected when the collateral becomes an accession, the security interest
remains perfected in the collateral.
(c) Priority of security interest. — Except as otherwise provided in subsection (d), the other provisions of this part determine the priority
of a security interest in an accession.
(d) Compliance with certificate-of-title statute. — A security interest in an accession is subordinate to a security interest in the whole
which is perfected by compliance with the requirements of a certificate-of-title statute under Section 9-311(b).
(e) Removal of accession after default. — After default, subject to Part 6, a secured party may remove an accession from other goods
if the security interest in the accession has priority over the claims of every person having an interest in the whole.
(f) Reimbursement following removal. — A secured party that removes an accession from other goods under subsection (e) shall
promptly reimburse any holder of a security interest or other lien on, or owner of, the whole or of the other goods, other than the debtor,
for the cost of repair of any physical injury to the whole or the other goods. The secured party need not reimburse the holder or owner
for any diminution in value of the whole or the other goods caused by the absence of the accession removed or by any necessity for
replacing it. A person entitled to reimbursement may refuse permission to remove until the secured party gives adequate assurance for
the performance of the obligation to reimburse.
(72 Del. Laws, c. 401, § 1.)
§ 9-336. Commingled goods.
(a) “Commingled goods.” — In this section, “commingled goods” means goods that are physically united with other goods in such a
manner that their identity is lost in a product or mass.
(b) No security interest in commingled goods as such. — A security interest does not exist in commingled goods as such. However, a
security interest may attach to a product or mass that results when goods become commingled goods.
(c) Attachment of security interest to product or mass. — If collateral becomes commingled goods, a security interest attaches to the
product or mass.
(d) Perfection of security interest. — If a security interest in collateral is perfected before the collateral becomes commingled goods,
the security interest that attaches to the product or mass under subsection (c) is perfected.
(e) Priority of security interest. — Except as otherwise provided in subsection (f), the other provisions of this part determine the priority
of a security interest that attaches to the product or mass under subsection (c).
(f) Conflicting security interests in product or mass. — If more than one security interest attaches to the product or mass under subsection
(c), the following rules determine priority:
(1) A security interest that is perfected under subsection (d) has priority over a security interest that is unperfected at the time the
collateral becomes commingled goods.
(2) If more than one security interest is perfected under subsection (d), the security interests rank equally in proportion to value of
the collateral at the time it became commingled goods.
(72 Del. Laws, c. 401, § 1.)
§ 9-337. Priority of security interests in goods covered by certificate of title.
If, while a security interest in goods is perfected by any method under the law of another jurisdiction, this State issues a certificate
of title that does not show that the goods are subject to the security interest or contain a statement that they may be subject to security
interests not shown on the certificate:
(1) a buyer of the goods, other than a person in the business of selling goods of that kind, takes free of the security interest if the
buyer gives value and receives delivery of the goods after issuance of the certificate and without knowledge of the security interest; and
(2) the security interest is subordinate to a conflicting security interest in the goods that attaches, and is perfected under Section
9-311(b), after issuance of the certificate and without the conflicting secured party’s knowledge of the security interest.
(72 Del. Laws, c. 401, § 1.)
§ 9-338. Priority of security interest or agricultural lien perfected by filed financing statement providing
certain incorrect information.
If a security interest or agricultural lien is perfected by a filed financing statement providing information described in Section 9-516(b)
(5) which is incorrect at the time the financing statement is filed:
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(1) the security interest or agricultural lien is subordinate to a conflicting perfected security interest in the collateral to the extent that
the holder of the conflicting security interest gives value in reasonable reliance upon the incorrect information; and
(2) a purchaser, other than a secured party, of the collateral takes free of the security interest or agricultural lien to the extent that,
in reasonable reliance upon the incorrect information, the purchaser gives value and, in the case of tangible chattel paper, tangible
documents, goods, instruments, or a security certificate, receives delivery of the collateral.
(72 Del. Laws, c. 401, § 1; 74 Del. Laws, c. 332, § 61.)
§ 9-339. Priority subject to subordination.
This Article does not preclude subordination by agreement by a person entitled to priority.
(72 Del. Laws, c. 401, § 1.)
4. Rights of Bank
§ 9-340. Effectiveness of right of recoupment or set-off against deposit account.
(a) Exercise of recoupment or set-off. — Except as otherwise provided in subsection (c), a bank with which a deposit account is
maintained may exercise any right of recoupment or set-off against the deposit account notwithstanding that a secured party holds a
security interest in the deposit account.
(b) Recoupment or setoff not affected by security interest. — Except as otherwise provided in subsection (c), the application of this
Article to a security interest in a deposit account does not affect a right of recoupment or set-off of the secured party as to a deposit
account maintained with the secured party.
(c) When set-off ineffective. — The exercise by a bank of a set-off against a deposit account is ineffective against a secured party that
holds a security interest in the deposit account which is perfected by control under Section 9-104(a)(3), if the set-off is based on a claim
against the debtor.
(d) No creation of set-off or recoupment right and no overriding of limitations or restrictions of other law. — This section neither
creates a right of set-off or recoupment nor is it intended to override any limitations or restrictions that other law imposes on the exercise
of those rights.
(72 Del. Laws, c. 401, § 1.)
§ 9-341. Bank’s rights and duties with respect to deposit account.
Except as otherwise provided in Section 9-340(c), and unless the bank otherwise agrees in an authenticated record, a bank’s rights and
duties with respect to a deposit account maintained with the bank are not terminated, suspended, or modified by:
(1) the creation, attachment, or perfection of a security interest in the deposit account;
(2) the bank’s knowledge of the security interest; or
(3) the bank’s receipt of instructions from the secured party.
(72 Del. Laws, c. 401, § 1.)
§ 9-342. Bank’s right to refuse to enter into or disclose existence of control agreement.
This Article does not require a bank to enter into an agreement of the kind described in Section 9-104(a)(2), even if its customer so
requests or directs. A bank that has entered into such an agreement is not required to confirm the existence of the agreement to another
person unless requested to do so by its customer.
(72 Del. Laws, c. 401, § 1.)
Part 4
Rights of Third Parties
§ 9-401. Alienability of debtor’s rights.
(a) Other law governs alienability; exceptions. — Except as otherwise provided in subsection (b) and Sections 9-406, 9-407, 9-408, and
9-409, whether a debtor’s rights in collateral may be voluntarily or involuntarily transferred is governed by law other than this Article.
(b) Agreement does not prevent transfer. — An agreement between the debtor and secured party which prohibits a transfer of the
debtor’s rights in collateral or makes the transfer a default does not prevent the transfer from taking effect.
(72 Del. Laws, c. 401, § 1.)
§ 9-402. Secured party not obligated on contract of debtor or in tort.
The existence of a security interest, agricultural lien, or authority given to a debtor to dispose of or use collateral, without more, does
not subject a secured party to liability in contract, tort or otherwise for the debtor’s acts or omissions.
(72 Del. Laws, c. 401, § 1.)
§ 9-403. Agreement not to assert defenses against assignee.
(a) “Value.” — In this section, “value” has the meaning provided in Section 3-303(a).
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(b) Agreement not to assert claim or defense. — Except as otherwise provided in this section, an agreement between an account debtor
and an assignor not to assert against an assignee any claim or defense that the account debtor may have against the assignor is enforceable
by an assignee that takes an assignment:
(1) for value;
(2) in good faith;
(3) without notice of a claim of a property or possessory right to the property assigned; and
(4) without notice of a defense or claim in recoupment of the type that may be asserted against a person entitled to enforce a negotiable
instrument under Section 3-305(a).
(c) When subsection (b) not applicable. — Subsection (b) does not apply to defenses of a type that may be asserted against a holder
in due course of a negotiable instrument under Section 3-305(b).
(d) Omission of required statement in consumer transaction. — In a consumer transaction, if (i) a record evidences the account debtor’s
obligation, (ii) law other than this Article requires that the record include a statement to the effect that the rights of an assignee are subject
to claims or defenses that the account debtor could assert against the original obligee, and (iii) the record does not include such a statement:
(1) the record has the same effect as if the record included such a statement; and
(2) the account debtor may assert against an assignee those claims and defenses that would have been available if the record included
such a statement.
(e) Rule for individual under other law. — This section is subject to law other than this Article which establishes a different rule for an
account debtor who is an individual and who incurred the obligation primarily for personal, family, or household purposes.
(f) Other law not displaced. — Except as otherwise provided in subsection (d), this section does not displace law other than this Article
which gives effect to an agreement by an account debtor not to assert a claim or defense against an assignee.
(72 Del. Laws, c. 401, § 1.)
§ 9-404. Rights acquired by assignee; claims and defenses against assignee.
(a) Assignee’s rights subject to terms, claims, and defenses; exceptions. — Unless an account debtor has made an enforceable agreement
not to assert defenses or claims, and subject to subsections (b) through (e), the rights of an assignee are subject to:
(1) all terms of the agreement between the account debtor and assignor and any defense or claim in recoupment arising from the
transaction that gave rise to the contract; and
(2) any other defense or claim of the account debtor against the assignor which accrues before the account debtor receives a
notification of the assignment authenticated by the assignor or the assignee.
(b) Account debtor’s claim reduces amount owed to assignee. — Subject to subsection (c) and except as otherwise provided in subsection
(d), the claim of an account debtor against an assignor may be asserted against an assignee under subsection (a) only to reduce the amount
the account debtor owes.
(c) Rule for individual under other law. — This section is subject to law other than this Article which establishes a different rule for an
account debtor who is an individual and who incurred the obligation primarily for personal, family, or household purposes.
(d) Omission of required statement in consumer transaction. — In a consumer transaction, if a record evidences the account debtor’s
obligation, law other than this Article requires that the record include a statement to the effect that the account debtor’s recovery against
an assignee with respect to claims and defenses against the assignor may not exceed amounts paid by the account debtor under the record,
and the record does not include such a statement, the extent to which a claim of an account debtor against the assignor may be asserted
against an assignee is determined as if the record included such a statement.
(e) Inapplicability to health-care-insurance receivable. — This section does not apply to an assignment of a health-care-insurance
receivable.
(72 Del. Laws, c. 401, § 1.)
§ 9-405. Modification of assigned contract.
(a) Effect of modification on assignee. — A modification of or substitution for an assigned contract is effective against an assignee if
made in good faith. The assignee acquires corresponding rights under the modified or substituted contract. The assignment may provide
that the modification or substitution is a breach of contract by the assignor. This subsection is subject to subsections (b) through (d).
(b) Applicability of subsection (a). — Subsection (a) applies to the extent that:
(1) the right to payment or a part thereof under an assigned contract has not been fully earned by performance; or
(2) the right to payment or a part thereof has been fully earned by performance and the account debtor has not received notification
of the assignment under Section 9-406(a).
(c) Rule for individual under other law. — This section is subject to law other than this Article which establishes a different rule for an
account debtor who is an individual and who incurred the obligation primarily for personal, family, or household purposes.
(d) Inapplicability to health-care-insurance receivable. — This section does not apply to an assignment of a health-care-insurance
receivable.
(72 Del. Laws, c. 401, § 1.)
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§ 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.
(a) Discharge of account debtor; effect of notification. — Subject to subsections (b) through (i), an account debtor on an account,
chattel paper, or a payment intangible may discharge its obligation by paying the assignor until, but not after, the account debtor receives
a notification, authenticated by the assignor or the assignee, that the amount due or to become due has been assigned and that payment
is to be made to the assignee. After receipt of the notification, the account debtor may discharge its obligation by paying the assignee
and may not discharge the obligation by paying the assignor.
(b) When notification ineffective. — Subject to subsection (h), notification is ineffective under subsection (a):
(1) if it does not reasonably identify the rights assigned;
(2) to the extent that an agreement between an account debtor and a seller of a payment intangible limits the account debtor’s duty
to pay a person other than the seller and the limitation is effective under law other than this Article; or
(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 payment intangible has been assigned to that assignee;
(B) a portion has been assigned to another assignee; or
(C) the account debtor knows that the assignment to that assignee is limited.
(c) Proof of assignment. — Subject to subsection (h), if requested by the account debtor, an assignee shall seasonably furnish reasonable
proof that the assignment has been made. Unless the assignee complies, the account debtor may discharge its obligation by paying the
assignor, even if the account debtor has received a notification under subsection (a).
(d) Term restricting assignment generally ineffective. — Except as otherwise provided in subsection (e) and Sections 2A-303 and 9-407,
and subject to subsection (h), a term in an agreement between an account debtor and an assignor or in a promissory note is ineffective
to the extent that it:
(1) prohibits, restricts, or requires the consent of the account debtor or person obligated on the promissory note to the assignment
or transfer of, or the creation, attachment, perfection, or enforcement of a security interest in, the account, chattel paper, payment
intangible, or promissory note; or
(2) provides that the assignment or transfer or the creation, attachment, perfection, or enforcement of the security interest may give
rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the account, chattel
paper, payment intangible, or promissory note.
(e) Inapplicability of subsection (d) to certain sales. — Subsection (d) does not apply to the sale of a payment intangible or promissory
note, other than a sale pursuant to a disposition under Section 9-610 or an acceptance of collateral under Section 9-620.
(f) Legal restrictions on assignment generally ineffective. — Except as otherwise provided in Sections 2A-303 and 9-407 and subject to
subsections (h) and (i), a rule of law, statute, or regulation that prohibits, restricts, or requires the consent of a government, governmental
body or official, or account debtor to the assignment or transfer of, or creation of a security interest in, an account or chattel paper is
ineffective to the extent that the rule of law, statute, or regulation:
(1) prohibits, restricts, or requires the consent of the government, governmental body or official, or account debtor to the assignment
or transfer of, or the creation, attachment, perfection, or enforcement of a security interest in, the account or chattel paper; or
(2) provides that the assignment or transfer or the creation, attachment, perfection, or enforcement of the security interest may give
rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the account or chattel
paper.
(g) Subsection (b)(3) not waivable. — Subject to subsection (h), an account debtor may not waive or vary its option under subsection
(b)(3).
(h) Rule for individual under other law. — This section is subject to law other than this Article which establishes a different rule for an
account debtor who is an individual and who incurred the obligation primarily for personal, family, or household purposes.
(i) Inapplicability. — This section does not apply to:
(1) an assignment of a health-care-insurance receivable;
(2) a claim or right to receive compensation for injuries or sickness as described in 26 U.S.C. § 104(a)(1) or (2), as amended from
time to time;
(3) a claim or right to receive benefits under a special needs trust as described in 42 U.S.C. § 1396p(d)(4), as amended from time
to time;
(4) an interest in a trust, including any right or power of a beneficiary (including a settlor) or owner of a trust, arising under a
governing instrument (as defined in Section 3301(e) of Title 12), Title 12, or other applicable law, to the extent that Delaware law
governs such interest; or
(5) an interest in a partnership or limited liability company.
Subsection (f) does not apply to an assignment or transfer of, or the creation, attachment, perfection, or enforcement of, a security interest
in, a right the transfer of which is prohibited or restricted by any of the following statutes, to the extent that the statute is inconsistent with
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subsection (f): Section 9011 of Title 11 (prohibiting assignment of victim awards and recoveries); Section 4915 of Title 10 (restricting
transferability of benefits, rights, privileges or options accruing under certain annuity contracts); Section 6863 of Title 18 (prohibiting
assignment of medical negligence compensation claims); Section 2355 of Title 19 (prohibiting assignment of workers’ compensation
claims or payment for compensation due or to become due); and Section 4808 of Title 29 (prohibiting assignment of lottery prizes).
(j) Section prevails over inconsistent law. — Except as otherwise provided in subsection (i), this section prevails over any inconsistent
provision of an existing or future statute, rule or regulation of this State unless the provision is contained in a statute of this State, refers
expressly to this section and states that the provision prevails over this section.
(72 Del. Laws, c. 401, § 1; 73 Del. Laws, c. 236, §§ 1, 2; 73 Del. Laws, c. 330, §§ 3, 4; 79 Del. Laws, c. 15, § 13; 81 Del. Laws, c.
320, § 7; 82 Del. Laws, c. 141, § 5.)
§ 9-407. Restrictions on creation or enforcement of security interest in leasehold interest or in lessor’s
residual interest.
(a) Term restricting assignment generally ineffective. — Except as otherwise provided in subsection (b), a term in a lease agreement
is ineffective to the extent that it:
(1) prohibits, restricts, or requires the consent of a party to the lease to the assignment or transfer of, or the creation, attachment,
perfection, or enforcement of a security interest in, an interest of a party under the lease contract or in the lessor’s residual interest
in the goods; or
(2) provides that the assignment or transfer or the creation, attachment, perfection, or enforcement of the security interest may give
rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the lease.
(b) Effectiveness of certain terms. — Except as otherwise provided in Section 2A-303(7), a term described in subsection (a)(2) is
effective to the extent that there is:
(1) a transfer by the lessee of the lessee’s right of possession or use of the goods in violation of the term; or
(2) a delegation of a material performance of either party to the lease contract in violation of the term.
(c) Security interest not material impairment. — The creation, attachment, perfection, or enforcement of a security interest in the
lessor’s interest under the lease contract or the lessor’s residual interest in the goods is not a transfer that materially impairs the lessee’s
prospect of obtaining return performance or materially changes the duty of or materially increases the burden or risk imposed on the
lessee within the purview of Section 2A-303(4) unless, and then only to the extent that, enforcement actually results in a delegation of
material performance of the lessor.
(72 Del. Laws, c. 401, § 1.)
§ 9-408. Restrictions on assignment of promissory notes, health-care-insurance receivables, and certain
general intangibles ineffective.
(a) Term restricting assignment generally ineffective. — Except as otherwise provided in subsection (b), a term in a promissory note
or in an agreement between an account debtor and a debtor which relates to a health-care-insurance receivable or a general intangible,
including a contract, permit, license, or franchise, and which term prohibits, restricts, or requires the consent of the person obligated on
the promissory note or the account debtor to, the assignment or transfer of, or creation, attachment, or perfection of a security interest in,
the promissory note, health-care-insurance receivable, or general intangible, is ineffective to the extent that the term:
(1) would impair the creation, attachment, or perfection of a security interest; or
(2) provides that the assignment or transfer or the creation, attachment, or perfection of the security interest may give rise to a
default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the promissory note, healthcare-insurance receivable, or general intangible.
(b) Applicability of subsection (a) to sales of certain rights to payment. — Subsection (a) applies to a security interest in a payment
intangible or promissory note only if the security interest arises out of a sale of the payment intangible or promissory note, other than a
sale pursuant to a disposition under Section 9-610 or an acceptance of collateral under Section 9-620.
(c) Legal restrictions on assignment generally ineffective. — A rule of law, statute, or regulation that prohibits, restricts, or requires
the consent of a government, governmental body or official, person obligated on a promissory note, or account debtor to the assignment
or transfer of, or creation of a security interest in, a promissory note, health-care-insurance receivable, or general intangible, including
a contract, permit, license, or franchise between an account debtor and a debtor, is ineffective to the extent that the rule of law, statute,
or regulation:
(1) would impair the creation, attachment, or perfection of a security interest; or
(2) provides that the assignment or transfer or the creation, attachment, or perfection of the security interest may give rise to a
default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the promissory note, healthcare-insurance receivable, or general intangible.
(d) Limitation on ineffectiveness under subsections (a) and (c). — To the extent that a term in a promissory note or in an agreement
between an account debtor and a debtor which relates to a health-care-insurance receivable or general intangible or a rule of law, statute,
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or regulation described in subsection (c) would be effective under law other than this Article but is ineffective under subsection (a) or (c),
the creation, attachment, or perfection of a security interest in the promissory note, health-care-insurance receivable, or general intangible:
(1) is not enforceable against the person obligated on the promissory note or the account debtor;
(2) does not impose a duty or obligation on the person obligated on the promissory note or the account debtor;
(3) does not require the person obligated on the promissory note or the account debtor to recognize the security interest, pay or render
performance to the secured party, or accept payment or performance from the secured party;
(4) does not entitle the secured party to use or assign the debtor’s rights under the promissory note, health-care-insurance receivable, or
general intangible, including any related information or materials furnished to the debtor in the transaction giving rise to the promissory
note, health-care-insurance receivable, or general intangible;
(5) does not entitle the secured party to use, assign, possess, or have access to any trade secrets or confidential information of the
person obligated on the promissory note or the account debtor; and
(6) does not entitle the secured party to enforce the security interest in the promissory note, health-care-insurance receivable, or
general intangible.
(e) Inapplicability. — This section does not apply to:
(1) a claim or right to receive compensation for injuries or sickness as described in 26 U.S.C. § 104(a)(1) or (2), as amended from
time to time;
(2) a claim or right to receive benefits under a special needs trust as described in 42 U.S.C. § 1396p(d)(4), as amended from time
to time;
(3) an interest in a trust, including any right or power of a beneficiary (including the settlor) or owner of a trust, arising under a
governing instrument (as defined in Section 3301(e) of Title 12), Title 12, or other applicable law, to the extent that Delaware law
governs such interest; or
(4) an interest in a partnership or limited liability company.
Subsection (c) does not apply to an assignment or transfer of, or the creation, attachment, perfection, or enforcement of a security interest
in, a right the transfer of which is prohibited or restricted by any of the following statutes, to the extent that the statute is inconsistent with
subsection (c): Section 9011 of Title 11 (prohibiting assignment of victim awards and recoveries); Section 4915 of Title 10 (restricting
transferability of benefits, rights, privileges or options accruing under certain annuity contracts); Section 6863 of Title 18 (prohibiting
assignment of medical negligence compensation claims); Section 2355 of Title 19 (prohibiting assignment of workers’ compensation
claims or payment for compensation due or to become due); and Section 4808 of Title 29 (prohibiting assignment of lottery prizes).
(f) Section prevails over inconsistent law. — Except as otherwise provided in subsection (e), this section prevails over any inconsistent
provision of an existing or future statute, rule or regulation of this State unless the provision is contained in a statute of this State, refers
expressly to this section and states that the provision prevails over this section.
(72 Del. Laws, c. 401, § 1; 73 Del. Laws, c. 236, §§ 3, 4; 73 Del. Laws, c. 330, §§ 5, 6; 79 Del. Laws, c. 15, § 14; 81 Del. Laws, c.
320, § 7; 82 Del. Laws, c. 141, § 6.)
§ 9-409. Restrictions on assignment of letter-of-credit rights ineffective.
(a) Term or law restricting assignment generally ineffective. — A term in a letter of credit or a rule of law, statute, regulation, custom,
or practice applicable to the letter of credit which prohibits, restricts, or requires the consent of an applicant, issuer, or nominated person
to a beneficiary’s assignment of or creation of a security interest in a letter-of-credit right is ineffective to the extent that the term or rule
of law, statute, regulation, custom, or practice:
(1) would impair the creation, attachment, or perfection of a security interest in the letter-of-credit right; or
(2) provides that the assignment or the creation, attachment, or perfection of the security interest may give rise to a default, breach,
right of recoupment, claim, defense, termination, right of termination, or remedy under the letter-of-credit right.
(b) Limitation on ineffectiveness under subsection (a). — To the extent that a term in a letter of credit is ineffective under subsection
(a) but would be effective under law other than this Article or a custom or practice applicable to the letter of credit, to the transfer of a
right to draw or otherwise demand performance under the letter of credit, or to the assignment of a right to proceeds of the letter of credit,
the creation, attachment, or perfection of a security interest in the letter-of-credit right:
(1) is not enforceable against the applicant, issuer, nominated person, or transferee beneficiary;
(2) imposes no duties or obligations on the applicant, issuer, nominated person, or transferee beneficiary; and
(3) does not require the applicant, issuer, nominated person, or transferee beneficiary to recognize the security interest, pay or render
performance to the secured party, or accept payment or other performance from the secured party.
(72 Del. Laws, c. 401, § 1.)
Part 5
Filing
1 Filing Office; Contents and Effectiveness of Financing Statement
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§ 9-501. Filing office.
(a) Filing offices. — Except as otherwise provided in subsection (b), if the local law of this State governs perfection of a security interest
or agricultural lien, the office in which to file a financing statement to perfect the security interest or agricultural lien is:
(1) the office designated for the filing or recording of a record of a mortgage on the related real property, if:
(A) the collateral is as-extracted collateral or timber to be cut; or
(B) the financing statement is filed as a fixture filing and the collateral is goods that are or are to become fixtures; or
(2) the office of the Secretary of State, in all other cases, including a case in which the collateral is goods that are or are to become
fixtures and the financing statement is not filed as a fixture filing.
(b) Filing office for transmitting utilities. — The office in which to file a financing statement to perfect a security interest in collateral,
including fixtures, of a transmitting utility is the office of the Secretary of State. The financing statement also constitutes a fixture filing
as to the collateral indicated in the financing statement which is or is to become fixtures.
(72 Del. Laws, c. 401, § 1.)
§ 9-502. Contents of financing statement; record of mortgage as financing statement; time of filing financing
statement.
(a) Sufficiency of financing statement. — Subject to subsection (b), a financing statement is sufficient only if it:
(1) provides the name of the debtor;
(2) provides the name of the secured party or a representative of the secured party; and
(3) indicates the collateral covered by the financing statement.
(b) Real property-related financing statements. — Except as otherwise provided in Section 9-501(b), to be sufficient, a financing
statement that covers as-extracted collateral or timber to be cut, or which is filed as a fixture filing and covers goods that are or are to
become fixtures, must satisfy subsection (a) and also:
(1) indicate that it covers this type of collateral;
(2) indicate that it is to be filed in the real property records;
(3) provide a description of the real property to which the collateral is related sufficient to give constructive notice of a mortgage
under the law of this State if the description were contained in a record of the mortgage of the real property; and
(4) if the debtor does not have an interest of record in the real property, provide the name of a record owner.
(c) Record of mortgage as financing statement. — A record of a mortgage is effective, from the date of recording, as a financing
statement filed as a fixture filing or as a financing statement covering as-extracted collateral or timber to be cut only if:
(1) the record indicates the goods or accounts that it covers;
(2) the goods are or are to become fixtures related to the real property described in the record or the collateral is related to the real
property described in the record and is as-extracted collateral or timber to be cut;
(3) the record satisfies the requirements for a financing statement in this section, but the record need not indicate that it is to be
filed in the real property records; and
(4) the record is duly recorded.
A record of a mortgage is not a financing statement but is effective as a financing statement as provided in § 9-502(c) of this title.
(d) Filing before security agreement or attachment. — A financing statement may be filed before a security agreement is made or a
security interest otherwise attaches.
(72 Del. Laws, c. 401, § 1; 75 Del. Laws, c. 66, § 2; 79 Del. Laws, c. 15, § 15.)
§ 9-503. Name of debtor and secured party.
(a) Sufficiency of debtor’s name. — A financing statement sufficiently provides the name of the debtor:
(1) except as otherwise provided in paragraph (3), if the debtor is a registered organization or the collateral is held in a trust that is a
registered organization, only if the financing statement provides the name that is stated to be the registered organization’s name on the
public organic record inclusive of the record most recently filed with or issued or enacted by the registered organization’s jurisdiction
of organization which purports to state, amend, restate, or correct the registered organization’s name;
(2) subject to subsection (f), if the collateral is being administered by the personal representative of a decedent, only if the financing
statement provides, as the name of the debtor, the name of the decedent and, in a separate part of the financing statement, indicates
that the collateral is being administered by a personal representative;
(3) if the collateral is held in a trust that is not a registered organization, only if the financing statement:
(A) provides, as the name of the debtor:
(i) if the organic record of the trust specifies a name for the trust, the name specified; or
(ii) if the organic record of the trust does not specify a name for the trust, the name of the settlor or testator; and
(B) in a separate part of the financing statement:
(i) if the name is provided in accordance with subparagraph (A)(i), indicates that the collateral is held in trust; or
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(ii) if the name is provided in accordance with subparagraph (A)(ii), provides additional information sufficient to distinguish
the trust from other trusts having one or more of the same settlors or the same testator and indicates that the collateral is held in
a trust, unless the additional information so indicates;
(4) if the debtor is an individual, only if the financing statement:
(A) provides the individual name of the debtor;
(B) provides the surname and first personal name of the debtor; or
(C) subject to subsection (g), provides the name of the individual which is indicated on a driver’s license or identification card
that this State has issued to the individual and which has not expired; and
(5) in other cases:
(A) if the debtor has a name, only if the financing statement provides the organizational name of the debtor; and
(B) if the debtor does not have a name, only if the financing statement provides the names of the partners, members, associates, or
other persons comprising the debtor, in a manner that each name provided would be sufficient if the person named were the debtor.
(b) Additional debtor-related information. — A financing statement that provides the name of the debtor in accordance with subsection
(a) is not rendered ineffective by the absence of:
(1) a trade name or other name of the debtor; or
(2) unless required under subsection (a)(5)(B), names of partners, members, associates, or other persons comprising the debtor.
(c) Debtor’s trade name insufficient. — A financing statement that provides only the debtor’s trade name does not sufficiently provide
the name of the debtor.
(d) Representative capacity. — Failure to indicate the representative capacity of a secured party or representative of a secured party
does not affect the sufficiency of a financing statement.
(e) Multiple debtors and secured parties. — A financing statement may provide the name of more than one debtor and the name of
more than one secured party.
(f) Name of decedent. — The name of the decedent indicated on the order appointing the personal representative of the decedent issued
by the court having jurisdiction over the collateral is sufficient as the “name of the decedent” under subsection (a)(2).
(g) Multiple driver’s licenses or identification cards. — If this State has issued to an individual more than one driver’s license or
identification card of a kind described in subsection (a)(4)(C), the one that was issued most recently is the one to which subsection (a)
(4)(C) refers.
(h) Definition. — In this section, the “name of the settlor or testator” means:
(1) if the settlor is a registered organization, the name that is stated to be the settlor’s name on the public organic record inclusive
of the record most recently filed with or issued or enacted by the settlor’s jurisdiction of organization which purports to state, amend,
restate, or correct the settlor’s name; or
(2) in other cases, the name of the settlor or testator indicated in the trust’s organic record.
(72 Del. Laws, c. 401, § 1; 74 Del. Laws, c. 332, § 62; 79 Del. Laws, c. 15, § 16.)
§ 9-504. Indication of collateral.
A financing statement sufficiently indicates the collateral that it covers if the financing statement provides:
(1) a description of the collateral pursuant to Section 9-108; or
(2) an indication that the financing statement covers all assets or all personal property.
(72 Del. Laws, c. 401, § 1.)
§ 9-504A. Indication of collateral that is accounts, chattel paper, instruments or general intangibles.
(a) A financing statement sufficiently indicates the collateral that it covers if the collateral is accounts, chattel paper, instruments or
general intangibles and:
(1) The financing statement provides a description of one or more records (such as a computer file, microfiche list, printed list or
other record) in the possession or control of the secured party and such record or records identify the specific accounts, chattel paper,
instruments or general intangibles constituting the collateral;
(2) The financing statement indicates:
(A) That the items described on the record or records in the possession or control of the secured party are accounts, chattel paper,
instruments or general intangibles; or
(B) The nature of the items on the record or records in the possession or control of the secured party by general description or
category; and
(3) The record or records in the possession or control of the secured party contain:
(A) Confidential information, such as credit card numbers, loan numbers or taxpayer identification numbers, identifying the
specific account debtors or persons obligated on the instruments; or
(B) A description of 100 or more specific accounts, chattel paper, instruments or general intangibles.
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(b) Subsection (a) provides an additional method of sufficiently indicating collateral in a financing statement for purposes of this Article.
A financing statement not complying with subsection (a) but otherwise complying with § 9-504 shall sufficiently indicate the collateral
it covers for purposes of this Article.
(74 Del. Laws, c. 332, § 63.)
§ 9-505. Filing and compliance with other statutes and treaties for consignments, leases, other bailments,
and other transactions.
(a) Use of terms other than “debtor” and “secured party.” — A consignor, lessor, or other bailor of goods, a licensor, or a buyer
of a payment intangible or promissory note may file a financing statement, or may comply with a statute or treaty described in Section
9-311(a), using the terms “consignor”, “consignee”, “lessor”, “lessee”, “bailor”, “bailee”, “licensor”, “licensee”, “owner”, “registered
owner”, “buyer”, “seller”, or words of similar import, instead of the terms “secured party” and “debtor”.
(b) Effect of financing statement under subsection (a). — This part applies to the filing of a financing statement under subsection (a)
and, as appropriate, to compliance that is equivalent to filing a financing statement under Section 9-311(b), but the filing or compliance
is not of itself a factor in determining whether the collateral secures an obligation. If it is determined for another reason that the collateral
secures an obligation, a security interest held by the consignor, lessor, bailor, licensor, owner, or buyer which attaches to the collateral
is perfected by the filing or compliance.
(72 Del. Laws, c. 401, § 1.)
§ 9-506. Effect of errors or omissions.
(a) Minor errors and omissions. — A financing statement substantially satisfying the requirements of this part is effective, even if it
has minor errors or omissions, unless the errors or omissions make the financing statement seriously misleading.
(b) Financing statement seriously misleading. — Except in the case of individual debtors and as otherwise provided in subsection (c),
a financing statement that fails sufficiently to provide the name of the debtor in accordance with Section 9-503(a) is seriously misleading.
(c) Financing statement not seriously misleading. — If a search of the records of the filing office under the debtor’s correct name, using
the filing office’s standard search logic, if any, would disclose a financing statement that fails sufficiently to provide the name of the
debtor in accordance with Section 9-503(a), the name provided does not make the financing statement seriously misleading.
(d) “Debtor’s correct name.” — For purposes of Section 9-508(b), the “debtor’s correct name” in subsection (c) means the correct
name of the new debtor.
(72 Del. Laws, c. 401, § 1.)
§ 9-507. Effect of certain events on effectiveness of financing statement.
(a) Disposition. — A filed financing statement remains effective with respect to collateral that is sold, exchanged, leased, licensed,
or otherwise disposed of and in which a security interest or agricultural lien continues, even if the secured party knows of or consents
to the disposition.
(b) Information becoming seriously misleading. — Except as otherwise provided in subsection (c) and Section 9-508, a financing
statement is not rendered ineffective if, after the financing statement is filed, the information provided in the financing statement becomes
seriously misleading under Section 9-506.
(c) Change in debtor’s name. — If the name that a filed financing statement provides for a debtor becomes insufficient as the name of
the debtor under Section 9-503(a) so that the filed financing statement becomes seriously misleading under Section 9-506:
(1) the financing statement is effective to perfect a security interest in collateral acquired by the debtor before, or within four months
after, the filed financing statement becomes seriously misleading; and
(2) the financing statement is not effective to perfect a security interest in collateral acquired by the debtor more than four months
after the filed financing statement becomes seriously misleading, unless an amendment to the financing statement which renders the
financing statement not seriously misleading is filed within four months after the financing statement became seriously misleading.
(72 Del. Laws, c. 401, § 1; 79 Del. Laws, c. 15, § 17.)
§ 9-508. Effectiveness of financing statement if new debtor becomes bound by security agreement.
(a) Financing statement naming original debtor. — Except as otherwise provided in this section, a filed financing statement naming
an original debtor is effective to perfect a security interest in collateral in which a new debtor has or acquires rights to the extent that the
financing statement would have been effective had the original debtor acquired rights in the collateral.
(b) Financing statement becoming seriously misleading. — If the difference between the name of the original debtor and that of the
new debtor causes a filed financing statement that is effective under subsection (a) to be seriously misleading under Section 9-506:
(1) the financing statement is effective to perfect a security interest in collateral acquired by the new debtor before, and within four
months after, the new debtor becomes bound under Section 9-203(d); and
(2) the financing statement is not effective to perfect a security interest in collateral acquired by the new debtor more than four
months after the new debtor becomes bound under Section 9-203(d) unless an initial financing statement providing the name of the
new debtor is filed before the expiration of that time.
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(c) When section not applicable. — This section does not apply to collateral as to which a filed financing statement remains effective
against the new debtor under Section 9-507(a).
(72 Del. Laws, c. 401, § 1.)
§ 9-509. Persons entitled to file a record.
(a) Person entitled to file record. — 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.
(b) Security agreement as authorization. — By authenticating or becoming bound as debtor by a security agreement, a debtor or new
debtor authorizes the filing of an initial financing statement, and an amendment, covering:
(1) the collateral described in the security agreement; and
(2) property that becomes collateral under Section 9-315(a)(2), whether or not the security agreement expressly covers proceeds.
(c) Acquisition of collateral as authorization. — By acquiring collateral in which a security interest or agricultural lien continues under
Section 9-315(a)(1), a debtor authorizes the filing of an initial financing statement, and an amendment, covering the collateral and property
that becomes collateral under Section 9-315(a)(2).
(d) Person entitled to file certain amendments. — A person may file an amendment other than an amendment that adds collateral
covered by a financing statement or an amendment that adds a debtor to a financing statement only if:
(1) the secured party of record authorizes the filing; or
(2) the amendment is a termination statement for a financing statement as to which the secured party of record has failed to file
or send a termination statement as required by Section 9-513(a) or (c), the debtor authorizes the filing, and the termination statement
indicates that the debtor authorized it to be filed.
(e) Multiple secured parties of record. — If there is more than one secured party of record for a financing statement, each secured party
of record may authorize the filing of an amendment under subsection (d).
(f) Trusts and trustees. — If either the debtor or the secured party is a trust (including a trust that is a registered organization) or a
trustee acting with respect to property held in trust and is otherwise entitled to file a record pursuant to Section 9-509, authorization by
an authorized person in the name of either the trust or the trustee shall be effective.
(72 Del. Laws, c. 401, § 1; 74 Del. Laws, c. 332, § 64.)
§ 9-510. Effectiveness of filed record.
(a) Filed record effective if authorized. — A filed record is effective only to the extent that it was filed by a person that may file it
under Section 9-509.
(b) Authorization by one secured party of record. — A record authorized by one secured party of record does not affect the financing
statement with respect to another secured party of record.
(c) Continuation statement not timely filed. — A continuation statement that is not filed within the six-month period prescribed by
Section 9-515(d) is ineffective.
(72 Del. Laws, c. 401, § 1.)
§ 9-511. Secured party of record.
(a) Secured party of record. — A secured party of record with respect to a financing statement is a person whose name is provided
as the name of the secured party or a representative of the secured party in an initial financing statement that has been filed. If an initial
financing statement is filed under Section 9-514(a), the assignee named in the initial financing statement is the secured party of record
with respect to the financing statement.
(b) Amendment naming secured party of record. — If an amendment of a financing statement which provides the name of a person
as a secured party or a representative of a secured party is filed, the person named in the amendment is a secured party of record. If an
amendment is filed under Section 9-514(b), the assignee named in the amendment is a secured party of record.
(c) Amendment deleting secured party of record. — A person remains a secured party of record until the filing of an amendment of
the financing statement which deletes the person.
(72 Del. Laws, c. 401, § 1.)
§ 9-512. Amendment of financing statement.
(a) Amendment of information in financing statement. — Subject to Section 9-509, a person may add or delete collateral covered by,
continue or terminate the effectiveness of, or, subject to subsection (e), otherwise amend the information provided in, a financing statement
by filing an amendment that:
(1) identifies, by its file number, the initial financing statement to which the amendment relates; and
(2) if the amendment relates to an initial financing statement filed in a filing office described in Section 9-501(a)(1), provides the
information specified in Section 9-502(b).
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(b) Period of effectiveness not affected. — Except as otherwise provided in Section 9-515, the filing of an amendment does not extend
the period of effectiveness of the financing statement.
(c) Effectiveness of amendment adding collateral. — A financing statement that is amended by an amendment that adds collateral is
effective as to the added collateral only from the date of the filing of the amendment.
(d) Effectiveness of amendment adding debtor. — A financing statement that is amended by an amendment that adds a debtor is effective
as to the added debtor only from the date of the filing of the amendment.
(e) Certain amendments ineffective. — An amendment is ineffective to the extent it:
(1) purports to delete all debtors and fails to provide the name of a debtor to be covered by the financing statement; or
(2) purports to delete all secured parties of record and fails to provide the name of a new secured party of record.
(f) Conversion of debtor. — Subject to Section 9-316:
(1) If a conversion of a debtor from one type of organization to another results in the converted organization being the same
organization by operation of the laws governing such conversion and the name of the debtor changes as a result of such conversion,
then such conversion shall constitute a change in such debtor’s name for purposes of Section 9-507(c);
(2) If a conversion of a debtor from one type of organization to another results in the converted organization being the same
organization by operation of the laws governing such conversion, then such organization shall not constitute a new debtor for purposes
of Section 9-508; and
(3) If a conversion of a debtor from one type of organization to another results in the converted organization being a different
organization by operation of the laws governing such conversion, then such organization shall constitute a new debtor for purposes
of Section 9-508.
(72 Del. Laws, c. 401, § 1; 79 Del. Laws, c. 15, § 18.)
§ 9-513. Termination statement.
(a) Consumer goods. — A secured party shall cause the secured party of record for a financing statement to file a termination statement
for the financing statement if the financing statement covers consumer goods and:
(1) there is no obligation secured by the collateral covered by the financing statement and no commitment to make an advance, incur
an obligation, or otherwise give value; or
(2) the debtor did not authorize the filing of the initial financing statement.
(b) Time for compliance with subsection (a). — To comply with subsection (a), a secured party shall cause the secured party of record
to file the termination statement:
(1) within one month after there is no obligation secured by the collateral covered by the financing statement and no commitment
to make an advance, incur an obligation, or otherwise give value; or
(2) if earlier, within 20 days after the secured party receives an authenticated demand from a debtor.
(c) Other collateral. — In cases not governed by subsection (a), within 20 days after a secured party receives an authenticated demand
from a debtor, the secured party shall cause the secured party of record for a financing statement to send to the debtor a termination
statement for the financing statement or file the termination statement in the filing office if:
(1) except in the case of a financing statement covering accounts or chattel paper that has been sold or goods that are the subject
of a consignment, there is no obligation secured by the collateral covered by the financing statement and no commitment to make an
advance, incur an obligation, or otherwise give value;
(2) the financing statement covers accounts or chattel paper that has been sold but as to which the account debtor or other person
obligated has discharged its obligation;
(3) the financing statement covers goods that were the subject of a consignment to the debtor but are not in the debtor’s possession; or
(4) the debtor did not authorize the filing of the initial financing statement.
(d) Effect of filing termination statement. — 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.
(72 Del. Laws, c. 401, § 1.)
§ 9-514. Assignment of powers of secured party of record.
(a) Assignment reflected on initial financing statement. — Except as otherwise provided in subsection (c), an initial financing statement
may reflect an assignment of all of the secured party’s power to authorize an amendment to the financing statement by providing the
name and mailing address of the assignee as the name and address of the secured party.
(b) Assignment of filed financing statement. — Except as otherwise provided in subsection (c), a secured party of record may assign
of record all or part of its power to authorize an amendment to a financing statement by filing in the filing office an amendment of the
financing statement which:
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(1) identifies, by its file number, the initial financing statement to which it relates;
(2) provides the name of the assignor; and
(3) provides the name and mailing address of the assignee.
(c) Assignment of record of mortgage. — An assignment of record of a security interest in a fixture covered by a record of a mortgage
which is effective as a financing statement filed as a fixture filing under Section 9-502(c) may be made only by an assignment of record
of the mortgage in the manner provided by law of this State other than the Uniform Commercial Code.
(72 Del. Laws, c. 401, § 1.)
§ 9-515. Duration and effectiveness of financing statement; effect of lapsed financing statement.
(a) Five-year effectiveness. — Except as otherwise provided in subsections (b), (e), (f), and (g), a filed financing statement is effective
for a period of five years after the date of filing.
(b) Public-finance or manufactured-home transaction. — Except as otherwise provided in subsections (e), (f), and (g), an initial
financing statement filed in connection with a public-finance transaction or manufactured-home transaction is effective for a period of 30
years after the date of filing if it indicates that it is filed in connection with a public-finance transaction or manufactured-home transaction.
(c) Lapse and continuation of financing statement. — The effectiveness of a filed financing statement lapses on the expiration of the
period of its effectiveness unless before the lapse a continuation statement is filed pursuant to subsection (d). Upon lapse, a financing
statement ceases to be effective and any security interest or agricultural lien that was perfected by the financing statement becomes
unperfected, unless the security interest is perfected otherwise. If the security interest or agricultural lien becomes unperfected upon lapse,
it is deemed never to have been perfected as against a purchaser of the collateral for value.
(d) When continuation statement may be filed. — A continuation statement may be filed only within six months before the expiration
of the five-year period specified in subsection (a) or the 30-year period specified in subsection (b), whichever is applicable.
(e) Effect of filing continuation statement. — Except as otherwise provided in Section 9-510, upon timely filing of a continuation
statement, the effectiveness of the initial financing statement continues for a period of five years commencing on the day on which
the financing statement would have become ineffective in the absence of the filing. Upon the expiration of the five-year period, the
financing statement lapses in the same manner as provided in subsection (c), unless, before the lapse, another continuation statement is
filed pursuant to subsection (d). Succeeding continuation statements may be filed in the same manner to continue the effectiveness of
the initial financing statement.
(f) Transmitting utility financing statement. — If a debtor is a transmitting utility and a filed initial financing statement so indicates,
the financing statement is effective until a termination statement is filed.
(g) Record of mortgage as financing statement. — A record of a mortgage that is effective as a financing statement filed as a fixture
filing under Section 9-502(c) remains effective as a financing statement filed as a fixture filing until the mortgage is released or satisfied
of record or its effectiveness otherwise terminates as to the real property.
(72 Del. Laws, c. 401, § 1; 79 Del. Laws, c. 15, § 19.)
§ 9-516. What constitutes filing; effectiveness of filing.
(a) What constitutes filing. — Except as otherwise provided in subsection (b), communication of a record to a filing office and tender
of the filing fee or acceptance of the record by the filing office constitutes filing.
(b) Refusal to accept record; filing does not occur. — Filing does not occur with respect to a record that a filing office refuses to
accept because:
(1) the record is not communicated by a method or medium of communication authorized by the filing office;
(2) an amount equal to or greater than the applicable filing fee is not tendered;
(3) the filing office is unable to index the record because:
(A) in the case of an initial financing statement, the record does not provide a name for the debtor;
(B) in the case of an amendment or information statement, the record:
(i) does not identify the initial financing statement as required by Section 9-512 or 9-518, as applicable; or
(ii) identifies an initial financing statement whose effectiveness has lapsed under Section 9-515;
(C) in the case of an initial financing statement that provides the name of a debtor identified as an individual or an amendment
that provides a name of a debtor identified as an individual which was not previously provided in the financing statement to which
the record relates, the record does not identify the debtor’s surname; or
(D) in the case of a record filed in the filing office described in Section 9-501(a)(1), the record does not provide a sufficient
description of the real property to which it relates;
(4) in the case of an initial financing statement or an amendment that adds a secured party of record, the record does not provide a
name and mailing address for the secured party of record;
(5) in the case of an initial financing statement or an amendment that provides a name of a debtor which was not previously provided
in the financing statement to which the amendment relates, the record does not:
(A) provide a mailing address for the debtor; or
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(B) indicate whether the name provided as the name of the debtor is the name of an individual or an organization;
(C) [Repealed.]
(6) in the case of an assignment reflected in an initial financing statement under Section 9-514(a) or an amendment filed under
Section 9-514(b), the record does not provide a name and mailing address for the assignee; or
(7) in the case of a continuation statement, the record is not filed within the six-month period prescribed by Section 9-515(d).
(c) Rules applicable to subsection (b). — For purposes of subsection (b):
(1) a record does not provide information if the filing office is unable to read or decipher the information;
(2) a record that does not indicate that it is an amendment or identify an initial financing statement to which it relates, as required
by Section 9-512, 9-514, or 9-518, is an initial financing statement;
(3) for an initial financing statement filed in a filing office described in § 9-501(a)(1) of this title, the requirements of § 9605(f) of
Title 9 may be satisfied by placing the county tax assessment parcel identification number in item 4 of the form specified in § 9-521(a)
of this title or the comparable item on any other form of initial financing statement;
(4) for a financing statement amendment filed in a filing office described in § 9-501(a)(1) of this title, the requirements of § 9605(f)
of Title 9 may be satisfied by placing the county tax assessment parcel identification number in item 8 of the form specified in §
9-521(b) of this title or the comparable item on any other form of financing statement amendment;
(5) for an initial financing statement filed in a filing office described in § 9-501(a)(1) of this title, the requirements of § 9605(h) of
Title 9 shall be satisfied by including the information required by § 9-502(b) of this title; and
(6) for a financing statement amendment filed in a filing office described in § 9-501(a)(1) of this title, the requirements of § 9605(h)
of Title 9 shall be satisfied by including the information required by § 9-512(a) of this title.
(d) Refusal to accept record; record effective as filed record. — A record that is communicated to the filing office with tender of the
filing fee, but which the filing office refuses to accept for a reason other than one set forth in subsection (b), is effective as a filed record
except as against a purchaser of the collateral which gives value in reasonable reliance upon the absence of the record from the files.
(e) Trusts and trustees. — If collateral is held in a trust (including a trust that is a registered organization), the information required by
subsection (b)(5) with respect to the debtor may be provided with respect to either the trust or the trustee.
(72 Del. Laws, c. 401, § 1; 74 Del. Laws, c. 332, § 65; 75 Del. Laws, c. 66, § 3; 79 Del. Laws, c. 15, §§ 20-22.)
§ 9-517. Effect of indexing errors.
The failure of the filing office to index a record correctly does not affect the effectiveness of the filed record.
(72 Del. Laws, c. 401, § 1.)
§ 9-518. Claim concerning inaccurate or wrongfully filed record.
(a) Statement with respect to record indexed under person’s name. — A person may file in the filing office an information statement
with respect to a record indexed there under the person’s name if the person believes that the record is inaccurate or was wrongfully filed.
(b) Contents of statement under subsection (a). — An information statement under subsection (a) must:
(1) identify the record to which it relates by:
(A) the file number assigned to the initial financing statement to which the record relates; and
(B) if the information statement relates to a record filed in a filing office described in Section 9-501(a)(1), the date that the initial
financing statement was filed and the information specified in Section 9-502(b);
(2) indicate that it is an information statement; and
(3) provide the basis for the person’s belief that the record is inaccurate and indicate the manner in which the person believes the
record should be amended to cure any inaccuracy or provide the basis for the person’s belief that the record was wrongfully filed.
(c) Statement by secured party of record. — A person may file in the filing office an information statement with respect to a record
filed there if the person is a secured party of record with respect to the financing statement to which the record relates and believes that
the person that filed the record was not entitled to do so under Section 9-509(d).
(d) Contents of statement under subsection (c). — An information statement under subsection (c) must:
(1) identify the record to which it relates by:
(A) the file number assigned to the initial financing statement to which the record relates; and
(B) if the information statement relates to a record filed in a filing office described in Section 9-501(a)(1), the date that the initial
financing statement was filed and the information specified in Section 9-502(b);
(2) indicate that it is an information statement; and
(3) provide the basis for the person’s belief that the person that filed the record was not entitled to do so under Section 9-509(d).
(e) Record not affected by information statement. — The filing of an information statement does not affect the effectiveness of an initial
financing statement or other filed record.
(72 Del. Laws, c. 401, § 1; 79 Del. Laws, c. 15, § 23.)
2 Duties and Operation of Filing Office
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§ 9-519. Numbering, maintaining, and indexing records; communicating information provided in records.
(a) Filing office duties. — For each record filed in a filing office, the filing office shall:
(1) assign a unique number to the filed record;
(2) create a record that bears the number assigned to the filed record and the date and time of filing;
(3) maintain the filed record for public inspection; and
(4) index the filed record in accordance with subsections (c), (d), and (e).
(b) File number. — A file number assigned after January 1, 2002 must include a digit that:
(1) is mathematically derived from or related to the other digits of the file number; and
(2) aids the filing office in determining whether a number communicated as the file number includes a single-digit or transpositional
error.
(c) Indexing: general. — Except as otherwise provided in subsections (d) and (e), the filing office shall:
(1) index an initial financing statement according to the name of the debtor and index all filed records relating to the initial financing
statement in a manner that associates with one another an initial financing statement and all filed records relating to the initial financing
statement; and
(2) index a record that provides a name of a debtor which was not previously provided in the financing statement to which the record
relates also according to the name that was not previously provided.
(d) Indexing: real property-related financing statement. — If a financing statement is filed as a fixture filing or covers as-extracted
collateral or timber to be cut, the filing office shall index it:
(1) under the names of the debtor and of each owner of record shown on the financing statement as if they were the mortgagors
under a mortgage of the real property described; and
(2) to the extent that the law of this State provides for indexing of records of mortgages under the name of the mortgagee, under the
name of the secured party as if the secured party were the mortgagee thereunder, or, if indexing is by description, as if the financing
statement were a record of a mortgage of the real property described.
(e) Indexing: real property-related assignment. — If a financing statement is filed as a fixture filing or covers as-extracted collateral or
timber to be cut, the filing office shall index an assignment filed under Section 9-514(a) or an amendment filed under Section 9-514(b):
(1) under the name of the assignor as grantor; and
(2) to the extent that the law of this State provides for indexing a record of the assignment of a mortgage under the name of the
assignee, under the name of the assignee.
(f) Retrieval and association capability. — The filing office shall maintain a capability:
(1) to retrieve a record by the name of the debtor and by the file number assigned to the initial financing statement to which the
record relates; and
(2) to associate and retrieve with one another an initial financing statement and each filed record relating to the initial financing
statement.
(g) Removal of debtor’s name. — The filing office may not remove a debtor’s name from the index until one year after the effectiveness
of a financing statement naming the debtor lapses under Section 9-515 with respect to all secured parties of record.
(h) Timeliness of filing office performance. — The filing office shall perform the acts required by subsections (a) through (e) at the
time and in the manner prescribed by filing-office rule.
(72 Del. Laws, c. 401, § 1.)
§ 9-520. Acceptance and refusal to accept record.
(a) Mandatory refusal to accept record. — A filing office shall refuse to accept a record for filing for a reason set forth in Section
9-516(b) and may not refuse to accept a record for filing for any other reason.
(b) Communication concerning refusal. — If a filing office refuses to accept a record for filing, it shall communicate to the person that
presented the record the fact of and reason for the refusal and the date and time the record would have been filed had the filing office
accepted it. The communication must be made at the time and in the manner prescribed by filing-office rule.
(c) When filed financing statement effective. — A filed financing statement satisfying Section 9-502(a) and (b) is effective, even if the
filing office is required to refuse to accept it for filing under subsection (a). However, Section 9-338 applies to a filed financing statement
providing information described in Section 9-516(b)(5) which is incorrect at the time the financing statement is filed.
(d) Separate application to multiple debtors. — If a record communicated to a filing office provides information that relates to more
than one debtor, this part applies as to each debtor separately.
(72 Del. Laws, c. 401, § 1.)
§ 9-521 Uniform form of written financing statement and amendment.
(a) Initial financing statement form. — A filing office that accepts written records may not refuse to accept a written initial financing
statement in the following form and format except for a reason set forth in Section 9-516(b):
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(b) Amendment form. — A filing office that accepts written records may not refuse to accept a written record in the following forms
and formats except for a reason set forth in § 9-516(b):
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(72 Del. Laws, c. 401, § 1; 77 Del. Laws, c. 31, §§ 1, 2; 79 Del. Laws, c. 15, §§ 24, 25.)
§ 9-522. Maintenance and destruction of records.
(a) Post-lapse maintenance and retrieval of information. — The filing office shall maintain a record of the information provided in
a filed financing statement for at least one year after the effectiveness of the financing statement has lapsed under Section 9-515 with
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respect to all secured parties of record. The record must be retrievable by using the name of the debtor and by using the file number
assigned to the initial financing statement to which the record relates.
(b) Destruction of written records. — Except to the extent that a statute governing disposition of public records provides otherwise,
the filing office immediately may destroy any written record evidencing a financing statement. However, if the filing office destroys a
written record, it shall maintain another record of the financing statement which complies with subsection (a).
(72 Del. Laws, c. 401, § 1.)
§ 9-523. Information from filing office; sale or license of records.
(a) Acknowledgment of filing written record. — If a person that files a written record requests an acknowledgment of the filing, the
filing office shall send to the person an image of the record showing the number assigned to the record pursuant to Section 9-519(a)
(1) and the date and time of the filing of the record. However, if the person furnishes a copy of the record to the filing office, the filing
office may instead:
(1) note upon the copy the number assigned to the record pursuant to Section 9-519(a)(1) and the date and time of the filing of
the record; and
(2) send the copy to the person.
(b) Acknowledgment of filing other record. — If a person files a record other than a written record, the filing office shall communicate
to the person an acknowledgment that provides:
(1) the information in the record;
(2) the number assigned to the record pursuant to Section 9-519(a)(1); and
(3) the date and time of the filing of the record.
(c) Communication of requested information. — The filing office shall communicate or otherwise make available in a record the
following information to any person that requests it:
(1) whether there is on file on a date and time specified by the filing office, but not a date earlier than three business days before
the filing office receives the request, any financing statement that:
(A) designates a particular debtor;
(B) has not lapsed under Section 9-515 with respect to all secured parties of record; and
(C) if the request so states, has lapsed under Section 9-515 and a record of which is maintained by the filing office under Section
9-522(a);
(2) the date and time of filing of each financing statement; and
(3) the information provided in each financing statement.
(d) Medium for communicating information. — In complying with its duty under subsection (c), the filing office may communicate
information in any medium. However, if requested, the filing office shall communicate information by issuing a record that can be admitted
into evidence in the courts of this State without extrinsic evidence of its authenticity.
(e) Timeliness of filing office performance. — The filing office shall perform the acts required by subsections (a) through (d) at the
time and in the manner prescribed by filing-office rule.
(f) Public availability of records. — At least weekly, the office of the Secretary of State may offer to sell or license to the public on a
nonexclusive basis, in bulk, copies of all records filed in it under this part, in every medium from time to time available to the filing office.
(72 Del. Laws, c. 401, § 1.)
§ 9-524. Delay by filing office.
Delay by the filing office beyond a time limit prescribed by this part is excused if:
(1) the delay is caused by interruption of communication or computer facilities, war, emergency conditions, failure of equipment,
or other circumstances beyond control of the filing office; and
(2) the filing office exercises reasonable diligence under the circumstances.
(72 Del. Laws, c. 401, § 1.)
§ 9-525. Fees.
(a) Initial financing statement or other record; general rule. — Except as otherwise provided in subsection (e), the fee for filing and
indexing a record under this part, other than an initial financing statement of the kind described in subsection (b), is:
(1) The amount specified in subsection (c), if applicable, plus an amount not to exceed $ 125 and an amount of $2 per page for each
page in excess of 4 pages if the record is communicated in writing or as an image; or
(2) An amount not to exceed $ 100 if the record is communicated via the Internet or a similar medium authorized by filing office rule,
provided that filings complying with such rule shall be exempt from fees described in subsection (c) and paragraph (d)(3) of this section.
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(b) Initial financing statement: public-finance or manufactured-home transaction. — Except as otherwise provided in subsection (e),
the fee for filing and indexing an initial financing statement of the following kind is the amount specified in subsection (a)(and, if
applicable, subsection (c)), plus $20 if the financing statement indicates that it is filed in connection with a public-finance transaction
or a manufactured-home transaction.
(c) Number of names. — Except as otherwise provided in subsection (e), if a record is communicated in writing or as an image, the
fee for each name more than two required to be indexed is $25.
(d) Response to information request and expediting services. — (1) The fee for responding to a request for information from the filing
office, including for communicating whether there is on file any financing statement naming a particular debtor, is:
(A) $25 if the request is communicated in writing; and
(B) $25 if the request is communicated by another medium authorized by filing-office rule.
(2) Upon request the filing office shall provide a copy of any record for a uniform fee of $10 for the first page and $2 for each
additional page; provided however, that the office of the Secretary of State may, in its discretion, establish different rate schedules for
bulk copies pursuant to § 9-523(f) of this title.
(3) For each service described in this subsection or in Section 9-523(a) that is requested to be completed: (i) within a twenty-four
hour period from the time of the request, the Secretary of State shall charge the additional sum of up to $100; (ii) within the same day
as the day of the request, the Secretary of State shall charge the additional sum of up to $200; (iii) within a two-hour period from the
time of the request, the Secretary of State shall charge the additional sum of up to $500; and (iv) within a one-hour period from the
time of the request, the Secretary of State shall charge the additional sum of up to $1,000.
(e) Record of mortgage. — This section does not require a fee with respect to a record of a mortgage which is effective as a financing
statement filed as a fixture filing or as a financing statement covering as-extracted collateral or timber to be cut under Section 9-502(c).
However, the recording and satisfaction fees that otherwise would be applicable to the record of the mortgage apply.
(72 Del. Laws, c. 401, § 1; 73 Del. Laws, c. 384, §§ 1, 2; 74 Del. Laws, c. 52, §§ 1-4; 77 Del. Laws, c. 78, §§ 1, 2; 81 Del. Laws,
c. 53, § 1.)
§ 9-526. Filing-office rules.
(a) Adoption of filing-office rules. — The Secretary of State shall adopt and publish rules to implement this Article. The filing-office
rules must be:
(1) consistent with this Article; and
(2) adopted and published in accordance with Chapter 101 of Title 29 (the Delaware Administrative Procedures Act).
(b) Harmonization of rules. — To keep the filing-office rules and practices of the filing office in harmony with the rules and practices
of filing offices in other jurisdictions that enact substantially this part, and to keep the technology used by the filing office compatible
with the technology used by filing offices in other jurisdictions that enact substantially this part, the office of the Secretary of State, so far
as is consistent with the purposes, policies, and provisions of this Article, in adopting, amending, and repealing filing-office rules, shall:
(1) consult with filing offices in other jurisdictions that enact substantially this part; and
(2) consult the most recent version of the Model Rules promulgated by the International Association of Corporate Administrators
or any successor organization; and
(3) take into consideration the rules and practices of, and the technology used by, filing offices in other jurisdictions that enact
substantially this part.
(72 Del. Laws, c. 401, § 1.)
Part 6
Default
1 Default and Enforcement of Security Interest
§ 9-601. Rights after default; judicial enforcement; consignor or buyer of accounts, chattel paper, payment
intangibles, or promissory notes.
(a) Rights of secured party after default. — After default, a secured party has the rights provided in this part and, except as otherwise
provided in Section 9-602, those provided by agreement of the parties. A secured party:
(1) may reduce a claim to judgment, foreclose, or otherwise enforce the claim, security interest, or agricultural lien by any available
judicial procedure; and
(2) if the collateral is documents, may proceed either as to the documents or as to the goods they cover.
(b) Rights and duties of secured party in possession or control. — A secured party in possession of collateral or control of collateral
under Section 7-106, 9-104, 9-105, 9-106, or 9-107 has the rights and duties provided in Section 9-207.
(c) Rights cumulative; simultaneous exercise. — The rights under subsections (a) and (b) are cumulative and may be exercised
simultaneously.
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(d) Rights of debtor and obligor. — Except as otherwise provided in subsection (g) and Section 9-605, after default, a debtor and an
obligor have the rights provided in this part and by agreement of the parties.
(e) Lien of levy after judgment. — If a secured party has reduced its claim to judgment, the lien of any levy that may be made upon the
collateral by virtue of an execution based upon the judgment relates back to the earliest of:
(1) the date of perfection of the security interest or agricultural lien in the collateral;
(2) the date of filing a financing statement covering the collateral; or
(3) any date specified in a statute under which the agricultural lien was created.
(f) Execution sale. — A sale pursuant to an execution is a foreclosure of the security interest or agricultural lien by judicial procedure
within the meaning of this section. A secured party may purchase at the sale and thereafter hold the collateral free of any other requirements
of this Article.
(g) Consignor or buyer of certain rights to payment. — Except as otherwise provided in Section 9-607(c), this part imposes no duties
upon a secured party that is a consignor or is a buyer of accounts, chattel paper, payment intangibles, or promissory notes.
(72 Del. Laws, c. 401, § 1; 74 Del. Laws, c. 332, § 66.)
§ 9-602. Waiver and variance of rights and duties.
Except as otherwise provided in Section 9-624, to the extent that they give rights to a debtor or obligor and impose duties on a secured
party, the debtor or obligor may not waive or vary the rules stated in the following listed sections:
(1) Section 9-207(b)(4)(C), which deals with use and operation of the collateral by the secured party;
(2) Section 9-210, which deals with requests for an accounting and requests concerning a list of collateral and statement of account;
(3) Section 9-607(c), which deals with collection and enforcement of collateral;
(4) Sections 9-608(a) and 9-615(c) to the extent that they deal with application or payment of noncash proceeds of collection,
enforcement, or disposition;
(5) Sections 9-608(a) and 9-615(d) to the extent that they require accounting for or payment of surplus proceeds of collateral;
(6) Section 9-609 to the extent that it imposes upon a secured party that takes possession of collateral without judicial process the
duty to do so without breach of the peace;
(7) Sections 9-610(b), 9-611, 9-613, and 9-614, which deal with disposition of collateral;
(8) Section 9-615(f), which deals with calculation of a deficiency or surplus when a disposition is made to the secured party, a person
related to the secured party, or a secondary obligor;
(9) Section 9-616, which deals with explanation of the calculation of a surplus or deficiency;
(10) Sections 9-620, 9-621, and 9-622, which deal with acceptance of collateral in satisfaction of obligation;
(11) Section 9-623, which deals with redemption of collateral;
(12) Section 9-624, which deals with permissible waivers; and
(13) Sections 9-625 and 9-626, which deal with the secured party’s liability for failure to comply with this Article.
(72 Del. Laws, c. 401, § 1.)
§ 9-603. Agreement on standards concerning rights and duties.
(a) Agreed standards. — The parties may determine by agreement the standards measuring the fulfillment of the rights of a debtor or
obligor and the duties of a secured party under a rule stated in Section 9-602 if the standards are not manifestly unreasonable.
(b) Agreed standards inapplicable to breach of peace. — Subsection (a) does not apply to the duty under Section 9-609 to refrain
from breaching the peace.
(72 Del. Laws, c. 401, § 1.)
§ 9-604. Procedure if security agreement covers real property or fixtures.
(a) Enforcement: personal and real property. — If a security agreement covers both personal and real property, a secured party may
proceed:
(1) under this part as to the personal property without prejudicing any rights with respect to the real property; or
(2) as to both the personal property and the real property in accordance with the rights with respect to the real property, in which
case the other provisions of this part do not apply.
(b) Enforcement: fixtures. — Subject to subsection (c), if a security agreement covers goods that are or become fixtures, a secured
party may proceed:
(1) under this part; or
(2) in accordance with the rights with respect to real property, in which case the other provisions of this part do not apply.
(c) Removal of fixtures. — Subject to the other provisions of this part, if a secured party holding a security interest in fixtures has priority
over all owners and encumbrancers of the real property, the secured party, after default, may remove the collateral from the real property.
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(d) Injury caused by removal. — A secured party that removes collateral shall promptly reimburse any encumbrancer or owner of
the real property, other than the debtor, for the cost of repair of any physical injury caused by the removal. The secured party need not
reimburse the encumbrancer or owner for any diminution in value of the real property caused by the absence of the goods removed or
by any necessity of replacing them. A person entitled to reimbursement may refuse permission to remove until the secured party gives
adequate assurance for the performance of the obligation to reimburse.
(72 Del. Laws, c. 401, § 1.)
§ 9-605. Unknown debtor or secondary obligor.
A secured party does not owe a duty based on its status as secured party:
(1) to a person that is a debtor or obligor, unless the secured party knows:
(A) that the person is a debtor or obligor;
(B) the identity of the person; and
(C) how to communicate with the person; or
(2) to a secured party or lienholder that has filed a financing statement against a person, unless the secured party knows:
(A) that the person is a debtor; and
(B) the identity of the person.
(72 Del. Laws, c. 401, § 1.)
§ 9-606. Time of default for agricultural lien.
For purposes of this part, a default occurs in connection with an agricultural lien at the time the secured party becomes entitled to
enforce the lien in accordance with the statute under which it was created.
(72 Del. Laws, c. 401, § 1.)
§ 9-607. Collection and enforcement by secured party.
(a) Collection and enforcement generally. — If so agreed, and in any event after default, a secured party:
(1) may notify an account debtor or other person obligated on collateral to make payment or otherwise render performance to or
for the benefit of the secured party;
(2) may take any proceeds to which the secured party is entitled under Section 9-315;
(3) may enforce the obligations of an account debtor or other person obligated on collateral and exercise the rights of the debtor with
respect to the obligation of the account debtor or other person obligated on collateral to make payment or otherwise render performance
to the debtor, and with respect to any property that secures the obligations of the account debtor or other person obligated on the
collateral;
(4) if it holds a security interest in a deposit account perfected by control under Section 9-104(a)(1), may apply the balance of the
deposit account to the obligation secured by the deposit account; and
(5) if it holds a security interest in a deposit account perfected by control under Section 9-104(a)(2) or (3), may instruct the bank to
pay the balance of the deposit account to or for the benefit of the secured party.
(b) Nonjudicial enforcement of mortgage. — If necessary to enable a secured party to exercise under subsection (a)(3) the right of a
debtor to enforce a mortgage nonjudicially, the secured party may record in the office in which a record of the mortgage is recorded:
(1) a copy of the security agreement that creates or provides for a security interest in the obligation secured by the mortgage; and
(2) the secured party’s sworn affidavit in recordable form stating that:
(A) a default has occurred with respect to the obligation secured by the mortgage; and
(B) the secured party is entitled to enforce the mortgage nonjudicially.
(c) Commercially reasonable collection and enforcement. — A secured party shall proceed in a commercially reasonable manner if
the secured party:
(1) undertakes to collect from or enforce an obligation of an account debtor or other person obligated on collateral; and
(2) is entitled to charge back uncollected collateral or otherwise to full or limited recourse against the debtor or a secondary obligor.
(d) Expenses of collection and enforcement. — A secured party may deduct from the collections made pursuant to subsection (c)
reasonable expenses of collection and enforcement, including reasonable attorney’s fees and legal expenses incurred by the secured party.
(e) Duties to secured party not affected. — This section does not determine whether an account debtor, bank, or other person obligated
on collateral owes a duty to a secured party.
(72 Del. Laws, c. 401, § 1; 79 Del. Laws, c. 15, § 26.)
§ 9-608. Application of proceeds of collection or enforcement; liability for deficiency and right to surplus.
(a) Application of proceeds, surplus, and deficiency if obligation secured. — If a security interest or agricultural lien secures payment
or performance of an obligation, the following rules apply:
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(1) A secured party shall apply or pay over for application the cash proceeds of collection or enforcement under Section 9-607,
reduced by the amounts deducted pursuant to Section 9-607(d), in the following order to:
(A) the reasonable expenses of collection and enforcement and, to the extent provided for by agreement and not prohibited by
law, reasonable attorney’s fees and legal expenses incurred by the secured party;
(B) the satisfaction of obligations secured by the security interest or agricultural lien under which the collection or enforcement
is made; and
(C) the satisfaction of obligations secured by any subordinate security interest in or other lien on the collateral subject to the
security interest or agricultural lien under which the collection or enforcement is made if the secured party receives an authenticated
demand for proceeds before distribution of the proceeds is completed.
(2) If requested by a secured party, a holder of a subordinate security interest or other lien shall furnish reasonable proof of the
interest or lien within a reasonable time. Unless the holder complies, the secured party need not comply with the holder’s demand
under paragraph (1)(C).
(3) A secured party need not apply or pay over for application noncash proceeds of collection and enforcement under 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.
(4) A secured party shall account to and pay a debtor for any surplus, and the obligor is liable for any deficiency.
(b) No surplus or deficiency in sales of certain rights to payment. — If the underlying transaction is a sale of accounts, chattel paper,
payment intangibles, or promissory notes, the debtor is not entitled to any surplus, and the obligor is not liable for any deficiency.
(72 Del. Laws, c. 401, § 1.)
§ 9-609. Secured party’s right to take possession after default.
(a) Possession; rendering equipment unusable; disposition on debtor’s premises. — After default, a secured party:
(1) may take possession of the collateral; and
(2) without removal, may render equipment unusable and dispose of collateral on a debtor’s premises under Section 9-610.
(b) Judicial and nonjudicial process. — A secured party may proceed under subsection (a):
(1) pursuant to judicial process; or
(2) without judicial process, if it proceeds without breach of the peace.
(c) Assembly of collateral. — If so agreed, and in any event after default, a secured party may require the debtor to assemble the collateral
and make it available to the secured party at a place to be designated by the secured party which is reasonably convenient to both parties.
(72 Del. Laws, c. 401, § 1.)
§ 9-610. Disposition of collateral after default.
(a) Disposition after default. — After default, a secured party may sell, lease, license, or otherwise dispose of any or all of the collateral
in its present condition or following any commercially reasonable preparation or processing.
(b) Commercially reasonable disposition. — Every aspect of a disposition of collateral, including the method, manner, time, place, and
other terms, must be commercially reasonable. If commercially reasonable, a secured party may dispose of collateral by public or private
proceedings, by one or more contracts, as a unit or in parcels, and at any time and place and on any terms.
(c) Purchase by secured party. — A secured party may purchase collateral:
(1) at a public disposition; or
(2) at a private disposition only if the collateral is of a kind that is customarily sold on a recognized market or the subject of widely
distributed standard price quotations.
(d) Warranties on disposition. — A contract for sale, lease, license, or other disposition includes the warranties relating to title,
possession, quiet enjoyment, and the like which by operation of law accompany a voluntary disposition of property of the kind subject
to the contract.
(e) Disclaimer of warranties. — A secured party may disclaim or modify warranties under subsection (d):
(1) in a manner that would be effective to disclaim or modify the warranties in a voluntary disposition of property of the kind subject
to the contract of disposition; or
(2) by communicating to the purchaser a record evidencing the contract for disposition and including an express disclaimer or
modification of the warranties.
(f) Record sufficient to disclaim warranties. — A record is sufficient to disclaim warranties under subsection (e) if it indicates “There
is no warranty relating to title, possession, quiet enjoyment, or the like in this disposition” or uses words of similar import.
(72 Del. Laws, c. 401, § 1.)
§ 9-611. Notification before disposition of collateral.
(a) “Notification date.” — In this section, “notification date” means the earlier of the date on which:
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(1) a secured party sends to the debtor and any secondary obligor an authenticated notification of disposition; or
(2) the debtor and any secondary obligor waive the right to notification.
(b) Notification of disposition required. — Except as otherwise provided in subsection (d), a secured party that disposes of collateral
under Section 9-610 shall send to the persons specified in subsection (c) a reasonable authenticated notification of disposition.
(c) Persons to be notified. — To comply with subsection (b), the secured party shall send an authenticated notification of disposition to:
(1) the debtor;
(2) any secondary obligor; and
(3) if the collateral is other than consumer goods:
(A) any other person from which the secured party has received, before the notification date, an authenticated notification of a
claim of an interest in the collateral;
(B) any other secured party or lienholder that, 10 days before the notification date, held a security interest in or other lien on the
collateral perfected by the filing of a financing statement that:
(i) identified the collateral;
(ii) was indexed under the debtor’s name as of that date; and
(iii) was filed in the office in which to file a financing statement against the debtor covering the collateral as of that date; and
(C) any other secured party that, 10 days before the notification date, held a security interest in the collateral perfected by
compliance with a statute, regulation, or treaty described in Section 9-311(a).
(d) Subsection (b) inapplicable: perishable collateral; recognized market. — Subsection (b) does not apply if the collateral is perishable
or threatens to decline speedily in value or is of a type customarily sold on a recognized market.
(e) Compliance with subsection (c)(3)(B). — A secured party complies with the requirement for notification prescribed by subsection
(c)(3)(B) if:
(1) not later than 20 days or earlier than 30 days before the notification date, the secured party requests, in a commercially reasonable
manner, information concerning financing statements indexed under the debtor’s name in the office indicated in subsection (c)(3)(B);
and
(2) before the notification date, the secured party:
(A) did not receive a response to the request for information; or
(B) received a response to the request for information and sent an authenticated notification of disposition to each secured party
or other lienholder named in that response whose financing statement covered the collateral.
(72 Del. Laws, c. 401, § 1.)
§ 9-612. Timeliness of notification before disposition of collateral.
(a) Reasonable time is question of fact. — Except as otherwise provided in subsection (b), whether a notification is sent within a
reasonable time is a question of fact.
(b) 10-day period sufficient in non-consumer transaction. — In a transaction other than a consumer transaction, a notification of
disposition sent after default and 10 days or more before the earliest time of disposition set forth in the notification is sent within a
reasonable time before the disposition.
(72 Del. Laws, c. 401, § 1.)
§ 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:
(A) describes the debtor and the secured party;
(B) describes the collateral that is the subject of the intended disposition;
(C) states the method of intended disposition;
(D) states that the debtor is entitled to an accounting of the unpaid indebtedness and states the charge, if any, for an accounting; and
(E) states the time and place of a public disposition or the time after which any other disposition is to be made.
(2) Whether the contents of a notification that lacks any of the information specified in paragraph (1) are nevertheless sufficient
is a question of fact.
(3) The contents of a notification providing substantially the information specified in paragraph (1) are sufficient, even if the
notification includes:
(A) information not specified by that paragraph; or
(B) minor errors that are not seriously misleading.
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(4) A particular phrasing of the notification is not required.
(5) The following form of notification and the form appearing in Section 9-614(3), when completed, each provides sufficient
information:
NOTIFICATION OF DISPOSITION OF COLLATERAL
To: [Name of debtor, obligor, or other person to which the notification is sent]
From: [Name, address, and telephone number of secured party]
Name of Debtor(s):
[Include only if debtor(s) are not an addressee]
[For a public disposition:]
We will sell [or lease or license, as applicable] the [describe collateral] [to the highest qualified bidder] in public as follows:
Day and Date:
Time:
Place:
[For a private disposition:]
We will sell [or lease or license, as applicable] the [describe collateral] privately sometime after [day and date].
You are entitled to an accounting of the unpaid indebtedness secured by the property that we intend to sell [or lease or license, as
applicable] [for a charge of $
]. You may request an accounting by calling us at [telephone number].
[End of Form]
(72 Del. Laws, c. 401, § 1.)
§ 9-614. Contents and form of notification before disposition of collateral: consumer-goods transaction.
In a consumer-goods transaction, the following rules apply:
(1) A notification of disposition must provide the following information:
(A) the information specified in Section 9-613(1);
(B) a description of any liability for a deficiency of the person to which the notification is sent;
(C) a telephone number from which the amount that must be paid to the secured party to redeem the collateral under Section
9-623 is available; and
(D) a telephone number or mailing address from which additional information concerning the disposition and the obligation
secured is available.
(2) A particular phrasing of the notification is not required.
(3) The following form of notification, when completed, provides sufficient information:
[Name and address of secured party]
[Date]
NOTICE OF OUR PLAN TO SELL PROPERTY
[Name and address of any obligor who is also a debtor]
Subject:
[Identification of Transaction]
We have your [describe collateral], because you broke promises in our agreement.
[For a public disposition:]
We will sell [describe collateral] at public sale. A sale could include a lease or license. The sale will be held as follows:
Date:
Time:
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Place:
You may attend the sale and bring bidders if you want.
[For a private disposition:]
We will sell [describe collateral] at private sale sometime after [date]. A sale could include a lease or license.
The money that we get from the sale (after paying our costs) will reduce the amount you owe. If we get less money than you owe,
you [will or will not, as applicable] still owe us the difference. If we get more money than you owe, you will get the extra money,
unless we must pay it to someone else.
You can get the property back at any time before we sell it by paying us the full amount you owe (not just the past due payments),
including our expenses. To learn the exact amount you must pay, call us at [telephone number].
If you want us to explain to you in writing how we have figured the amount that you owe us, you may call us at [telephone number]
[or write us at [secured party’s address]] and request a written explanation. [We will charge you $
for the explanation if
we sent you another written explanation of the amount you owe us within the last six months.]
If you need more information about the sale call us at [telephone number]] [or write us at [secured party’s address]].
We are sending this notice to the following other people who have an interest in [describe collateral] or who owe money under
your agreement:
[Names of all other debtors and obligors, if any]
[End of Form]
(4) A notification in the form of paragraph (3) is sufficient, even if additional information appears at the end of the form.
(5) A notification in the form of paragraph (3) is sufficient, even if it includes errors in information not required by paragraph (1),
unless the error is misleading with respect to rights arising under this Article.
(6) If a notification under this section is not in the form of paragraph (3), law other than this Article determines the effect of including
information not required by paragraph (1).
(72 Del. Laws, c. 401, § 1.)
§ 9-615. Application of proceeds of disposition; liability for deficiency and right to surplus.
(a) Application of proceeds. — A secured party shall apply or pay over for application the cash proceeds of disposition under Section
9-610 in the following order to:
(1) the reasonable expenses of retaking, holding, preparing for disposition, processing, and disposing, and, to the extent provided for
by agreement and not prohibited by law, reasonable attorney’s fees and legal expenses incurred by the secured party;
(2) the satisfaction of obligations secured by the security interest or agricultural lien under which the disposition is made;
(3) the satisfaction of obligations secured by any subordinate security interest in or other subordinate lien on the collateral if:
(A) the secured party receives from the holder of the subordinate security interest or other lien an authenticated demand for
proceeds before distribution of the proceeds is completed; and
(B) in a case in which a consignor has an interest in the collateral, the subordinate security interest or other lien is senior to the
interest of the consignor; and
(4) a secured party that is a consignor of the collateral if the secured party receives from the consignor an authenticated demand for
proceeds before distribution of the proceeds is completed.
(b) Proof of subordinate interest. — If requested by a secured party, a holder of a subordinate security interest or other lien shall furnish
reasonable proof of the interest or lien within a reasonable time. Unless the holder does so, the secured party need not comply with the
holder’s demand under subsection (a)(3).
(c) Application of noncash proceeds. — A secured party need not apply or pay over for application noncash proceeds of disposition
under 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.
(d) Surplus or deficiency if obligation secured. — If the security interest under which a disposition is made secures payment or
performance of an obligation, after making the payments and applications required by subsection (a) and permitted by subsection (c):
(1) unless subsection (a)(4) requires the secured party to apply or pay over cash proceeds to a consignor, the secured party shall
account to and pay a debtor for any surplus; and
(2) the obligor is liable for any deficiency.
(e) No surplus or deficiency in sales of certain rights to payment. — If the underlying transaction is a sale of accounts, chattel paper,
payment intangibles, or promissory notes:
(1) the debtor is not entitled to any surplus; and
(2) the obligor is not liable for any deficiency.
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(f) Calculation of surplus or deficiency in disposition to person related to secured party. — The surplus or deficiency following a
disposition is calculated based on the amount of proceeds that would have been realized in a disposition complying with this part to a
transferee other than the secured party, a person related to the secured party, or a secondary obligor if:
(1) the transferee in the disposition is the secured party, a person related to the secured party, or a secondary obligor; and
(2) the amount of proceeds of the disposition is significantly below the range of proceeds that a complying disposition to a person
other than the secured party, a person related to the secured party, or a secondary obligor would have brought.
(g) Cash proceeds received by junior secured party. — A secured party that receives cash proceeds of a disposition in good faith and
without knowledge that the receipt violates the rights of the holder of a security interest or other lien that is not subordinate to the security
interest or agricultural lien under which the disposition is made:
(1) takes the cash proceeds free of the security interest or other lien;
(2) is not obligated to apply the proceeds of the disposition to the satisfaction of obligations secured by the security interest or other
lien; and
(3) is not obligated to account to or pay the holder of the security interest or other lien for any surplus.
(72 Del. Laws, c. 401, § 1.)
§ 9-616. Explanation of calculation of surplus or deficiency.
(a) Definitions. — In this section:
(1) “Explanation” means a writing that:
(A) states the amount of the surplus or deficiency;
(B) provides an explanation in accordance with subsection (c) of how the secured party calculated the surplus or deficiency;
(C) states, if applicable, that future debits, credits, charges, including additional credit service charges or interest, rebates, and
expenses may affect the amount of the surplus or deficiency; and
(D) provides a telephone number or mailing address from which additional information concerning the transaction is available.
(2) “Request” means a record:
(A) authenticated by a debtor or consumer obligor;
(B) requesting that the recipient provide an explanation; and
(C) sent after disposition of the collateral under Section 9-610.
(b) Explanation of calculation. — In a consumer-goods transaction in which the debtor is entitled to a surplus or a consumer obligor
is liable for a deficiency under Section 9-615, the secured party shall:
(1) send an explanation to the debtor or consumer obligor, as applicable, after the disposition and:
(A) before or when the secured party accounts to the debtor and pays any surplus or first makes written demand on the consumer
obligor after the disposition for payment of the deficiency; and
(B) within 14 days after receipt of a request; or
(2) in the case of a consumer obligor who is liable for a deficiency, within 14 days after receipt of a request, send to the consumer
obligor a record waiving the secured party’s right to a deficiency.
(c) Required information. — To comply with subsection (a)(1)(B), a writing must provide the following information in the following
order:
(1) the aggregate amount of obligations secured by the security interest under which the disposition was made, and, if the amount
reflects a rebate of unearned interest or credit service charge, an indication of that fact, calculated as of a specified date:
(A) if the secured party takes or receives possession of the collateral after default, not more than 35 days before the secured party
takes or receives possession; or
(B) if the secured party takes or receives possession of the collateral before default or does not take possession of the collateral,
not more than 35 days before the disposition;
(2) the amount of proceeds of the disposition;
(3) the aggregate amount of the obligations after deducting the amount of proceeds;
(4) the amount, in the aggregate or by type, and types of expenses, including expenses of retaking, holding, preparing for disposition,
processing, and disposing of the collateral, and attorney’s fees secured by the collateral which are known to the secured party and
relate to the current disposition;
(5) the amount, in the aggregate or by type, and types of credits, including rebates of interest or credit service charges, to which the
obligor is known to be entitled and which are not reflected in the amount in paragraph (1); and
(6) the amount of the surplus or deficiency.
(d) Substantial compliance. — A particular phrasing of the explanation is not required. An explanation complying substantially with
the requirements of subsection (a) is sufficient, even if it includes minor errors that are not seriously misleading.
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(e) Charges for responses. — A debtor or consumer obligor is entitled without charge to one response to a request under this section
during any six-month period in which the secured party did not send to the debtor or consumer obligor an explanation pursuant to
subsection (b)(1). The secured party may require payment of a charge not exceeding $25 for each additional response.
(72 Del. Laws, c. 401, § 1.)
§ 9-617. Rights of transferee of collateral.
(a) Effects of disposition. — A secured party’s disposition of collateral after default:
(1) transfers to a transferee for value all of the debtor’s rights in the collateral;
(2) discharges the security interest under which the disposition is made; and
(3) discharges any subordinate security interest or other subordinate lien.
(b) Rights of good-faith transferee. — A transferee that acts in good faith takes free of the rights and interests described in subsection
(a), even if the secured party fails to comply with this Article or the requirements of any judicial proceeding.
(c) Rights of other transferee. — If a transferee does not take free of the rights and interests described in subsection (a), the transferee
takes the collateral subject to:
(1) the debtor’s rights in the collateral;
(2) the security interest or agricultural lien under which the disposition is made; and
(3) any other security interest or other lien.
(72 Del. Laws, c. 401, § 1.)
§ 9-618. Rights and duties of certain secondary obligors.
(a) Rights and duties of secondary obligor. — A secondary obligor acquires the rights and becomes obligated to perform the duties
of the secured party after the secondary obligor:
(1) receives an assignment of a secured obligation from the secured party;
(2) receives a transfer of collateral from the secured party and agrees to accept the rights and assume the duties of the secured party; or
(3) is subrogated to the rights of a secured party with respect to collateral.
(b) Effect of assignment, transfer, or subrogation. — An assignment, transfer, or subrogation described in subsection (a):
(1) is not a disposition of collateral under Section 9-610; and
(2) relieves the secured party of further duties under this Article.
(72 Del. Laws, c. 401, § 1.)
§ 9-619. Transfer of record or legal title.
(a) “Transfer statement.” — In this section, “transfer statement” means a record authenticated by a secured party stating:
(1) that the debtor has defaulted in connection with an obligation secured by specified collateral;
(2) that the secured party has exercised its post-default remedies with respect to the collateral;
(3) that, by reason of the exercise, a transferee has acquired the rights of the debtor in the collateral; and
(4) the name and mailing address of the secured party, debtor, and transferee.
(b) Effect of transfer statement. — A transfer statement entitles the transferee to the transfer of record of all rights of the debtor in the
collateral specified in the statement in any official filing, recording, registration, or certificate-of-title system covering the collateral. If a
transfer statement is presented with the applicable fee and request form to the official or office responsible for maintaining the system,
the official or office shall:
(1) accept the transfer statement;
(2) promptly amend its records to reflect the transfer; and
(3) if applicable, issue a new appropriate certificate of title in the name of the transferee.
(c) Transfer not a disposition; no relief of secured party’s duties. — A transfer of the record or legal title to collateral to a secured party
under subsection (b) or otherwise is not of itself a disposition of collateral under this Article and does not of itself relieve the secured
party of its duties under this Article.
(72 Del. Laws, c. 401, § 1.)
§ 9-620. Acceptance of collateral in full or partial satisfaction of obligation; compulsory disposition of
collateral.
(a) Conditions to acceptance in satisfaction. — Except as otherwise provided in subsection (g), a secured party may accept collateral
in full or partial satisfaction of the obligation it secures only if:
(1) the debtor consents to the acceptance under subsection (c);
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(2) the secured party does not receive, within the time set forth in subsection (d), a notification of objection to the proposal
authenticated by:
(A) a person to which the secured party was required to send a proposal under Section 9-621; or
(B) any other person, other than the debtor, holding an interest in the collateral subordinate to the security interest that is the
subject of the proposal;
(3) if the collateral is consumer goods, the collateral is not in the possession of the debtor when the debtor consents to the acceptance;
and
(4) subsection (e) does not require the secured party to dispose of the collateral or the debtor waives the requirement pursuant to
Section 9-624.
(b) Purported acceptance ineffective. — A purported or apparent acceptance of collateral under this section is ineffective unless:
(1) the secured party consents to the acceptance in an authenticated record or sends a proposal to the debtor; and
(2) the conditions of subsection (a) are met.
(c) Debtor’s consent. — For purposes of this section:
(1) a debtor consents to an acceptance of collateral in partial satisfaction of the obligation it secures only if the debtor agrees to the
terms of the acceptance in a record authenticated after default; and
(2) a debtor consents to an acceptance of collateral in full satisfaction of the obligation it secures only if the debtor agrees to the
terms of the acceptance in a record authenticated after default or the secured party:
(A) sends to the debtor after default a proposal that is unconditional or subject only to a condition that collateral not in the
possession of the secured party be preserved or maintained;
(B) in the proposal, proposes to accept collateral in full satisfaction of the obligation it secures; and
(C) does not receive a notification of objection authenticated by the debtor within 20 days after the proposal is sent.
(d) Effectiveness of notification. — To be effective under subsection (a)(2), a notification of objection must be received by the secured
party:
(1) in the case of a person to which the proposal was sent pursuant to Section 9-621, within 20 days after notification was sent to
that person; and
(2) in other cases:
(A) within 20 days after the last notification was sent pursuant to Section 9-621; or
(B) if a notification was not sent, before the debtor consents to the acceptance under subsection (c).
(e) Mandatory disposition of consumer goods. — A secured party that has taken possession of collateral shall dispose of the collateral
pursuant to Section 9-610 within the time specified in subsection (f) if:
(1) 60 percent of the cash price has been paid in the case of a purchase-money security interest in consumer goods; or
(2) 60 percent of the principal amount of the obligation secured has been paid in the case of a non-purchase-money security interest
in consumer goods.
(f) Compliance with mandatory disposition requirement. — To comply with subsection (e), the secured party shall dispose of the
collateral:
(1) within 90 days after taking possession; or
(2) within any longer period to which the debtor and all secondary obligors have agreed in an agreement to that effect entered into
and authenticated after default.
(g) No partial satisfaction in consumer transaction. — In a consumer transaction, a secured party may not accept collateral in partial
satisfaction of the obligation it secures.
(72 Del. Laws, c. 401, § 1.)
§ 9-621. Notification of proposal to accept collateral.
(a) Persons to which proposal to be sent. — A secured party that desires to accept collateral in full or partial satisfaction of the obligation
it secures shall send its proposal to:
(1) any person from which the secured party has received, before the debtor consented to the acceptance, an authenticated notification
of a claim of an interest in the collateral;
(2) any other secured party or lienholder that, 10 days before the debtor consented to the acceptance, held a security interest in or
other lien on the collateral perfected by the filing of a financing statement that:
(A) identified the collateral;
(B) was indexed under the debtor’s name as of that date; and
(C) was filed in the office or offices in which to file a financing statement against the debtor covering the collateral as of that
date; and
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(3) any other secured party that, 10 days before the debtor consented to the acceptance, held a security interest in the collateral
perfected by compliance with a statute, regulation, or treaty described in Section 9-311(a).
(b) Proposal to be sent to secondary obligor in partial satisfaction. — A secured party that desires to accept collateral in partial
satisfaction of the obligation it secures shall send its proposal to any secondary obligor in addition to the persons described in subsection
(a).
(72 Del. Laws, c. 401, § 1.)
§ 9-622. Effect of acceptance of collateral.
(a) Effect of acceptance. — A secured party’s acceptance of collateral in full or partial satisfaction of the obligation it secures:
(1) discharges the obligation to the extent consented to by the debtor;
(2) transfers to the secured party all of a debtor’s rights in the collateral;
(3) discharges the security interest or agricultural lien that is the subject of the debtor’s consent and any subordinate security interest
or other subordinate lien; and
(4) terminates any other subordinate interest.
(b) Discharge of subordinate interest notwithstanding noncompliance. — A subordinate interest is discharged or terminated under
subsection (a), even if the secured party fails to comply with this Article.
(72 Del. Laws, c. 401, § 1.)
§ 9-623. Right to redeem collateral.
(a) Persons that may redeem. — A debtor, any secondary obligor, or any other secured party or lienholder may redeem collateral.
(b) Requirements for redemption. — To redeem collateral, a person shall tender:
(1) fulfillment of all obligations secured by the collateral; and
(2) the reasonable expenses and attorney’s fees described in Section 9-615(a)(1).
(c) When redemption may occur. — A redemption may occur at any time before a secured party:
(1) has collected collateral under Section 9-607;
(2) has disposed of collateral or entered into a contract for its disposition under Section 9-610; or
(3) has accepted collateral in full or partial satisfaction of the obligation it secures under Section 9-622.
(72 Del. Laws, c. 401, § 1.)
§ 9-624. Waiver.
(a) Waiver of disposition notification. — A debtor or secondary obligor may waive the right to notification of disposition of collateral
under Section 9-611 only by an agreement to that effect entered into and authenticated after default.
(b) Waiver of mandatory disposition. — A debtor may waive the right to require disposition of collateral under Section 9-620(e) only
by an agreement to that effect entered into and authenticated after default.
(c) Waiver of redemption right. — Except in a consumer-goods transaction, a debtor or secondary obligor may waive the right to redeem
collateral under Section 9-623 only by an agreement to that effect entered into and authenticated after default.
(72 Del. Laws, c. 401, § 1.)
2 Noncompliance with Article
§ 9-625. Remedies for secured party’s failure to comply with article.
(a) Judicial orders concerning noncompliance. — If it is established that a secured party is not proceeding in accordance with this
Article, a court may order or restrain collection, enforcement, or disposition of collateral on appropriate terms and conditions.
(b) Damages for noncompliance. — 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 may include loss resulting from the debtor’s inability
to obtain, or increased costs of, alternative financing.
(c) Persons entitled to recover damages; statutory damages if collateral is consumer goods. — Except as otherwise provided in Section
9-628:
(1) a person that, at the time of the failure, was a debtor, was an obligor, or held a security interest in or other lien on the collateral
may recover damages under subsection (b) for its loss; and
(2) if the collateral is consumer goods, a person that was a debtor or a secondary obligor at the time a secured party failed to comply
with this part may recover for that failure in any event an amount not less than the credit service charge plus 10 percent of the principal
amount of the obligation or the time-price differential plus 10 percent of the cash price.
(d) Recovery when deficiency eliminated or reduced. — A debtor whose deficiency is eliminated under Section 9-626 may recover
damages for the loss of any surplus. However, a debtor or secondary obligor whose deficiency is eliminated or reduced under Section 9-626
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may not otherwise recover under subsection (b) for noncompliance with the provisions of this part relating to collection, enforcement,
disposition, or acceptance.
(e) Statutory damages: noncompliance with specified provisions. — In addition to any damages recoverable under subsection (b), the
debtor, consumer obligor, or person named as a debtor in a filed record, as applicable, may recover $500 in each case from a person that:
(1) fails to comply with Section 9-208;
(2) fails to comply with Section 9-209;
(3) files a record that the person is not entitled to file under Section 9-509(a);
(4) fails to cause the secured party of record to file or send a termination statement as required by Section 9-513(a) or (c);
(5) fails to comply with Section 9-616(b)(1) and whose failure is part of a pattern, or consistent with a practice, of noncompliance; or
(6) fails to comply with Section 9-616(b)(2).
(f) Statutory damages: noncompliance with Section 9-210. — A debtor or consumer obligor may recover damages under subsection (b)
and, in addition, $500 in each case from a person that, without reasonable cause, fails to comply with a request under Section 9-210. A
recipient of a request under Section 9-210 which never claimed an interest in the collateral or obligations that are the subject of a request
under that section has a reasonable excuse for failure to comply with the request within the meaning of this subsection.
(g) Limitation of security interest: noncompliance with Section 9-210. — 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.
(72 Del. Laws, c. 401, § 1; 79 Del. Laws, c. 15, § 27.)
§ 9-626. Action in which deficiency or surplus is in issue.
(a) Applicable rules if amount of deficiency or surplus in issue. — In an action arising from a transaction, other than a consumer
transaction, in which the amount of a deficiency or surplus is in issue, the following rules apply:
(1) A secured party need not prove compliance with the provisions of this part relating to collection, enforcement, disposition, or
acceptance unless the debtor or a secondary obligor places the secured party’s compliance in issue.
(2) If the secured party’s compliance is placed in issue, the secured party has the burden of establishing that the collection,
enforcement, disposition, or acceptance was conducted in accordance with this part.
(3) Except as otherwise provided in Section 9-628, if a secured party fails to prove that the collection, enforcement, disposition, or
acceptance was conducted in accordance with the provisions of this part relating to collection, enforcement, disposition, or acceptance,
the liability of a debtor or a secondary obligor for a deficiency is limited to an amount by which the sum of the secured obligation,
expenses, and attorney’s fees exceeds the greater of:
(A) the proceeds of the collection, enforcement, disposition, or acceptance; or
(B) the amount of proceeds that would have been realized had the noncomplying secured party proceeded in accordance with the
provisions of this part relating to collection, enforcement, disposition, or acceptance.
(4) For purposes of paragraph (3)(B), the amount of proceeds that would have been realized is equal to the sum of the secured
obligation, expenses, and attorney’s fees unless the secured party proves that the amount is less than that sum.
(5) If a deficiency or surplus is calculated under Section 9-615(f), the debtor or obligor has the burden of establishing that the amount
of proceeds of the disposition is significantly below the range of prices that a complying disposition to a person other than the secured
party, a person related to the secured party, or a secondary obligor would have brought.
(b) Non-consumer transactions; no inference. — The limitation of the rules in subsection (a) to transactions other than consumer
transactions is intended to leave to the court the determination of the proper rules in consumer transactions. The court may not infer from
that limitation the nature of the proper rule in consumer transactions and may continue to apply established approaches.
(72 Del. Laws, c. 401, § 1.)
§ 9-627. Determination of whether conduct was commercially reasonable.
(a) Greater amount obtainable under other circumstances; no preclusion of commercial reasonableness. — The fact that a greater
amount could have been obtained by a collection, enforcement, disposition, or acceptance at a different time or in a different method from
that selected by the secured party is not of itself sufficient to preclude the secured party from establishing that the collection, enforcement,
disposition, or acceptance was made in a commercially reasonable manner.
(b) Dispositions that are commercially reasonable. — A disposition of collateral is made in a commercially reasonable manner if the
disposition is made:
(1) in the usual manner on any recognized market;
(2) at the price current in any recognized market at the time of the disposition; or
(3) otherwise in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the
disposition.
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(c) Approval by court or on behalf of creditors. — A collection, enforcement, disposition, or acceptance is commercially reasonable
if it has been approved:
(1) in a judicial proceeding;
(2) by a bona fide creditors’ committee;
(3) by a representative of creditors; or
(4) by an assignee for the benefit of creditors.
(d) Approval under subsection (c) not necessary; absence of approval has no effect. — Approval under subsection (c) need not be
obtained, and lack of approval does not mean that the collection, enforcement, disposition, or acceptance is not commercially reasonable.
(72 Del. Laws, c. 401, § 1.)
§ 9-628. Nonliability and limitation on liability of secured party; liability of secondary obligor.
(a) Limitation of liability of secured party for noncompliance with Article. — Unless a secured party knows that a person is a debtor or
obligor, knows the identity of the person, and knows how to communicate with the person:
(1) the secured party is not liable to the person, or to a secured party or lienholder that has filed a financing statement against the
person, for failure to comply with this Article; and
(2) the secured party’s failure to comply with this Article does not affect the liability of the person for a deficiency.
(b) Limitation of liability based on status as a secured party. — A secured party is not liable because of its status as secured party:
(1) to a person that is a debtor or obligor, unless the secured party knows:
(A) that the person is a debtor or obligor;
(B) the identity of the person; and
(C) how to communicate with the person; or
(2) to a secured party or lienholder that has filed a financing statement against a person, unless the secured party knows:
(A) that the person is a debtor; and
(B) the identity of the person.
(c) Limitation of liability if reasonable belief that transaction not a consumer-goods transaction or consumer transaction. — A secured
party is not liable to any person, and a person’s liability for a deficiency is not affected, because of any act or omission arising out of the
secured party’s reasonable belief that a transaction is not a consumer-goods transaction or a consumer transaction or that goods are not
consumer goods, if the secured party’s belief is based on its reasonable reliance on:
(1) a debtor’s representation concerning the purpose for which collateral was to be used, acquired, or held; or
(2) an obligor’s representation concerning the purpose for which a secured obligation was incurred.
(d) Limitation of liability for statutory damages. — A secured party is not liable to any person under Section 9-625(c)(2) for its failure
to comply with Section 9-616.
(e) Limitation of multiple liability for statutory damages. — A secured party is not liable under Section 9-625(c)(2) more than once
with respect to any one secured obligation.
(72 Del. Laws, c. 401, § 1.)
Part 7
Transition
§ 9-701. Effective date.
This Act takes effect on July 1, 2001. References in this part to “this Act” refer to the legislative enactment by which this part is added
to Article 9 of the Uniform Commercial Code. References in this part to “former Article 9” are to Article 9 of the Uniform Commercial
Code as in effect immediately before this Act takes effect.
(72 Del. Laws, c. 401, § 1.)
§ 9-702. Savings clause.
(a) Pre-effective-date transactions or liens. — Except as otherwise provided in this part, this Act applies to a transaction or lien within
its scope, even if the transaction or lien was entered into or created before this Act takes effect.
(b) Continuing validity. — Except as otherwise provided in subsection (c) and Sections 9-703 through 9-709:
(1) transactions and liens that were not governed by former Article 9 of the Uniform Commercial Code, were validly entered into or
created before this Act takes effect, and would be subject to this Act if they had been entered into or created after this Act takes effect,
and the rights, duties, and interests flowing from those transactions and liens remain valid after this Act takes effect; and
(2) the transactions and liens may be terminated, completed, consummated, and enforced as required or permitted by this Act or by
the law that otherwise would apply if this Act had not taken effect.
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(c) Pre-effective-date proceedings. — This Act does not affect an action, case, or proceeding commenced before this Act takes effect.
(72 Del. Laws, c. 401, § 1.)
§ 9-703. Security interest perfected before effective date.
(a) Continuing priority over lien creditor: perfection requirements satisfied. — A security interest that is enforceable immediately
before this Act takes effect 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 Act if, when this Act takes effect, the applicable requirements for enforceability and perfection under this Act
are satisfied without further action.
(b) Continuing priority over lien creditor: perfection requirements not satisfied. — Except as otherwise provided in Section 9-705,
if, immediately before this Act takes effect, 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 this Act are not satisfied when
this Act takes effect, the security interest:
(1) is a perfected security interest for one year after this Act takes effect;
(2) remains enforceable thereafter only if the security interest becomes enforceable under Section 9-203 before the year expires; and
(3) remains perfected thereafter only if the applicable requirements for perfection under this Act are satisfied before the year expires.
(c) Special transition provision regarding trusts and trustees. — If, immediately before this Act takes effect, a security interest against
a debtor that is a trust or trustee is enforceable and would have priority over the rights of a person that becomes a lien creditor at that
time, but, pursuant to Section 9-503(a)(3) (dealing with the sufficiency of the name of the debtor in the case of trusts and trustees), the
financing statement filed in this State prior to the date this Act takes effect naming the trust or trustee as the debtor would be ineffective
under this Act solely because it does not sufficiently provide the name of the debtor, the financing statement remains effective to the same
extent as under former Article 9 of the Uniform Commercial Code (and shall remain effective by filing continuation statements naming
the debtor as in the financing statement to be continued) if (i) the trust is a trust created under the provisions of Chapter 38 of Title 12
(the Delaware Statutory Trust Act), (ii) the trust is a common law business trust, or (iii) a trustee of the trust is a corporation authorized
under the laws of this State to exercise corporate trust powers.
(72 Del. Laws, c. 401, § 1; 73 Del. Laws, c. 329, § 7.)
§ 9-704. Security interest unperfected before effective date.
A security interest that is enforceable immediately before this Act takes effect but which would be subordinate to the rights of a person
that becomes a lien creditor at that time:
(1) remains an enforceable security interest for one year after this Act takes effect;
(2) remains enforceable thereafter if the security interest becomes enforceable under Section 9-203 when this Act takes effect or
within one year thereafter; and
(3) becomes perfected:
(A) without further action, when this Act takes effect if the applicable requirements for perfection under this Act 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.
(72 Del. Laws, c. 401, § 1.)
§ 9-705. Effectiveness of action taken before effective date.
(a) Pre-effective-date action; one-year perfection period unless reperfected. — If action, other than the filing of a financing statement, is
taken before this Act takes effect 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 this Act takes effect, the action is effective to perfect a security interest
that attaches under this Act within one year after this Act takes effect. An attached security interest becomes unperfected one year after
this Act takes effect unless the security interest becomes a perfected security interest under this Act before the expiration of that period.
(b) Pre-effective-date filing. — The filing of a financing statement before this Act takes effect is effective to perfect a security interest
to the extent the filing would satisfy the applicable requirements for perfection under this Act.
(c) Pre-effective-date filing in jurisdiction formerly governing perfection. — This Act does not render ineffective an effective financing
statement that, before this Act takes effect, is filed and satisfies the applicable requirements for perfection under the law of the jurisdiction
governing perfection as provided in former Section 9-103. However, except as otherwise provided in subsections (d) and (e) and Section
9-706, 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) Continuation statement. — The filing of a continuation statement after this Act takes effect does not continue the effectiveness of the
financing statement filed before this Act takes effect. However, upon the timely filing of a continuation statement after this Act takes effect
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and in accordance with the law of the jurisdiction governing perfection as provided in Part 3, the effectiveness of a financing statement
filed in the same office in that jurisdiction before this Act takes effect continues for the period provided by the law of that jurisdiction.
(e) Application of subsection (c)(2) to transmitting utility financing statement. — Subsection (c)(2) applies to a financing statement
that, before this Act takes effect, is filed against a transmitting utility and satisfies the applicable requirements for perfection under the
law of the jurisdiction governing perfection as provided in former Section 9-103 of the Uniform Commercial Code only to the extent
that Part 3 provides that the law of a jurisdiction other than jurisdiction in which the financing statement is filed governs perfection of
a security interest in collateral covered by the financing statement.
(f) Application of Part 5. — A financing statement that includes a financing statement filed before this Act takes effect and a continuation
statement filed after this Act takes effect is effective only to the extent that it satisfies the requirements of Part 5 for an initial financing
statement, except as provided in Section 9-703(c).
(72 Del. Laws, c. 401, § 1.)
§ 9-706. When initial financing statement suffices to continue effectiveness of financing statement.
(a) Initial financing statement in lieu of continuation statement. — The filing of an initial financing statement in the office specified in
Section 9-501 continues the effectiveness of a financing statement filed before this Act takes effect if:
(1) the filing of an initial financing statement in that office would be effective to perfect a security interest under this Act;
(2) the pre-effective-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).
(b) Period of continued effectiveness. — The filing of an initial financing statement under subsection (a) continues the effectiveness
of the pre-effective-date financing statement:
(1) if the initial financing statement is filed before this Act takes effect, for the period provided in former Section 9-403 with respect
to a financing statement; and
(2) if the initial financing statement is filed after this Act takes effect, for the period provided in Section 9-515 with respect to an
initial financing statement.
(c) Requirements for initial financing statement under subsection (a). — To be effective for purposes of subsection (a), an initial
financing statement must:
(1) satisfy the requirements of Part 5 for an initial financing statement;
(2) identify the pre-effective-date financing statement by indicating the office in which the pre-effective-date financing statement
was filed and providing the dates of filing and file numbers, if any, of the initial pre-effective-date financing statement and of the
most recent continuation statement filed with respect to that financing statement; provided, that if the law of the jurisdiction governing
perfection prior to the effective date of this act [June 28, 2005] required the filing of the pre-effective-date financing statement in both
a central filing office and a local filing office, then an identification of the filing in the central filing office suffices for purposes of
this subsection (c)(2) of this section; and
(3) indicate that the pre-effective-date financing statement remains effective.
(72 Del. Laws, c. 401, § 1; 75 Del. Laws, c. 66, § 4.)
§ 9-707. Amendment of pre-effective-date financing statement.
(a) Pre-effective-date financing statement. — In this section, “pre-effective-date financing statement” means a financing statement filed
before this Act takes effect.
(b) Applicable law. — After this Act takes effect, a person may add or delete collateral covered by, continue or terminate the
effectiveness of, or otherwise amend the information provided in, a pre-effective-date financing statement only in accordance with the
law of the jurisdiction governing perfection as provided in Part 3. However, the effectiveness of a pre-effective-date financing statement
also may be terminated in accordance with the law of the jurisdiction in which the financing statement is filed.
(c) Method of amending: general rule. — Except as otherwise provided in subsection (d), if the law of this State governs perfection of
a security interest, the information in a pre-effective-date financing statement may be amended after this Act takes effect only if:
(1) the pre-effective-date financing statement and an amendment are filed in the office specified in Section 9-501;
(2) an amendment is filed in the office specified in Section 9-501 concurrently with, or after the filing in that office of, an initial
financing statement that satisfies Section 9-706(c); or
(3) an initial financing statement that provides the information as amended and satisfies Section 9-706(c) is filed in the office specified
in Section 9-501.
(d) Method of amending: continuation. — 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.
(e) Method of amending: additional termination rule. — Whether or not the law of this State governs perfection of a security interest,
the effectiveness of a pre-effective-date financing statement filed in this State may be terminated after this Act takes effect by filing a
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termination statement in the office in which the pre-effective-date financing statement is filed, unless an initial financing statement that
satisfies Section 9-706(c) has been filed in the office specified by the law of the jurisdiction governing perfection as provided in Part 3
as the office in which to file a financing statement.
(72 Del. Laws, c. 401, § 1.)
§ 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 this Act takes effect; or
(B) to perfect or continue the perfection of a security interest.
(72 Del. Laws, c. 401, § 1.)
§ 9-709. Priority.
(a) Law governing priority. — This Act determines the priority of conflicting claims to collateral. However, if the relative priorities of
the claims were established before this Act takes effect, former Article 9 of the Uniform Commercial Code determines priority.
(b) Priority if security interest becomes enforceable under Section 9-203. — For purposes of Section 9-322(a), the priority of a security
interest that becomes enforceable under Section 9-203 of this Act dates from the time this Act takes effect if the security interest is
perfected under this Act by the filing of a financing statement before this Act takes effect which would not have been effective to perfect
the security interest under former Article 9 of the Uniform Commercial Code. This subsection does not apply to conflicting security
interests each of which is perfected by the filing of such a financing statement.
(72 Del. Laws, c. 401, § 1.)
Part 8
Transition for 2010 Amendments
§ 9-801. Effective date.
This Act takes effect on July 1, 2013. References in this part to “this Act” refer to the legislative enactment by which this part is added
to Article 9 of the Uniform Commercial Code. References in this part to “former Article 9” are to Article 9 of the Uniform Commercial
Code as in effect immediately before this Act takes effect.
(79 Del. Laws, c. 15, § 28.)
§ 9-802. Savings clause.
(a) Pre-effective-date transactions or liens. — Except as otherwise provided in this part, this Act applies to a transaction or lien within
its scope, even if the transaction or lien was entered into or created before this Act takes effect.
(b) Pre-effective-date proceedings. — This Act does not affect an action, case, or proceeding commenced before this Act takes effect.
(79 Del. Laws, c. 15, § 28.)
§ 9-803. Security interest perfected before effective date.
(a) Continuing perfection: perfection requirements satisfied. — A security interest that is a perfected security interest immediately
before this Act takes effect is a perfected security interest under Article 9 as amended by this Act if, when this Act takes effect, the
applicable requirements for attachment and perfection under Article 9 as amended by this Act are satisfied without further action.
(b) Continuing perfection: perfection requirements not satisfied. — Except as otherwise provided in Section 9-805, if, immediately
before this Act takes effect, a security interest is a perfected security interest, but the applicable requirements for perfection under Article 9
as amended by this Act are not satisfied when this Act takes effect, the security interest remains perfected thereafter only if the applicable
requirements for perfection under Article 9 as amended by this Act are satisfied within one year after this Act takes effect.
(c) Special transition provision regarding trusts and trustees. — If, immediately before this Act takes effect, a security interest against
a debtor that is a trust or trustee is enforceable and would have priority over the rights of a person that becomes a lien creditor at that
time, but, pursuant to Section 9-503(a)(3) (dealing with the sufficiency of the name of the debtor if the collateral is held in a trust), the
financing statement filed in this State prior to the date this Act takes effect naming the trust or trustee as the debtor would be ineffective
under this Act solely because it does not sufficiently provide the name of the debtor, the financing statement remains effective to the same
extent as under former Article 9 of the Uniform Commercial Code (and shall remain effective by filing continuation statements naming
the debtor as in the financing statement to be continued) if (i) the trust is a trust created under the provisions of Chapter 38 of Title 12
(the Delaware Statutory Trust Act), (ii) the trust is a common law business trust, or (iii) a trustee of the trust is an organization authorized
under the laws of this State to exercise corporate trust powers.
(79 Del. Laws, c. 15, § 28.)
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§ 9-804. Security interest unperfected before effective date.
A security interest that is an unperfected security interest immediately before this Act takes effect becomes a perfected security interest:
(1) without further action, when this Act takes effect if the applicable requirements for perfection under Article 9 as amended by
this Act are satisfied before or at that time; or
(2) when the applicable requirements for perfection are satisfied if the requirements are satisfied after that time.
(79 Del. Laws, c. 15, § 28.)
§ 9-805. Effectiveness of action taken before effective date.
(a) Pre-effective-date filing effective. — The filing of a financing statement before this Act takes effect is effective to perfect a security
interest to the extent the filing would satisfy the applicable requirements for perfection under Article 9 as amended by this Act.
(b) When pre-effective-date filing becomes ineffective. — This Act does not render ineffective an effective financing statement that,
before this Act takes effect, is filed and satisfies the applicable requirements for perfection under the law of the jurisdiction governing
perfection as provided in former Article 9. However, except as otherwise provided in subsections (c) and (d) and Section 9-806, the
financing statement ceases to be effective:
(1) if the financing statement is filed in this State, at the time the financing statement would have ceased to be effective had this
Act not taken effect; or
(2) if the financing statement is filed in another jurisdiction, at the earlier of:
(A) the time the financing statement would have ceased to be effective under the law of that jurisdiction; or
(B) June 30, 2018.
(c) Continuation statement. — The filing of a continuation statement after this Act takes effect does not continue the effectiveness
of the financing statement filed before this Act takes effect. However, upon the timely filing of a continuation statement after this Act
takes effect and in accordance with the law of the jurisdiction governing perfection as provided in Article 9 as amended by this Act, the
effectiveness of a financing statement filed in the same office in that jurisdiction before this Act takes effect continues for the period
provided by the law of that jurisdiction.
(d) Application of subsection (b)(2)(B) to transmitting utility financing statement. — Subsection (b)(2)(B) applies to a financing
statement that, before this Act takes effect, is filed against a transmitting utility and satisfies the applicable requirements for perfection
under the law of the jurisdiction governing perfection as provided in former Article 9, only to the extent that Article 9 as amended by
this Act 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.
(e) Application of Part 5. — A financing statement that includes a financing statement filed before this Act takes effect and a continuation
statement filed after this Act takes effect is effective only to the extent that it satisfies the requirements of Part 5 as amended by this
Act for an initial financing statement, except as provided in Section 9-803(c). A financing statement that indicates that the debtor is a
decedent’s estate indicates that the collateral is being administered by a personal representative within the meaning of Section 9-503(a)
(2) as amended by this Act. A financing statement that indicates that the debtor is a trust or is a trustee acting with respect to property
held in a trust indicates that the collateral is held in a trust within the meaning of Section 9-503(a)(3) as amended by this Act.
(79 Del. Laws, c. 15, § 28.)
§ 9-806. When initial financing statement suffices to continue effectiveness of financing statement.
(a) Initial financing statement in lieu of continuation statement. — The filing of an initial financing statement in the office specified in
Section 9-501 continues the effectiveness of a financing statement filed before this Act takes effect if:
(1) the filing of an initial financing statement in that office would be effective to perfect a security interest under Article 9 as amended
by this Act;
(2) the pre-effective-date financing statement was filed in an office in another State; and
(3) the initial financing statement satisfies subsection (c).
(b) Period of continued effectiveness. — The filing of an initial financing statement under subsection (a) continues the effectiveness
of the pre-effective-date financing statement:
(1) if the initial financing statement is filed before this Act takes effect, for the period provided in Section 9-515 before this Act
takes effect, with respect to an initial financing statement; and
(2) if the initial financing statement is filed after this Act takes effect, for the period provided in Section 9-515 as amended by this
Act with respect to an initial financing statement.
(c) Requirements for initial financing statement under subsection (a). — To be effective for purposes of subsection (a), an initial
financing statement must:
(1) satisfy the requirements of Part 5 as amended by this Act for an initial financing statement;
(2) identify the pre-effective-date financing statement by indicating the office in which the pre-effective-date financing statement
was filed and providing the dates of filing and file numbers, if any, of the initial pre-effective-date financing statement and of the
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most recent continuation statement filed with respect to that financing statement; provided, that if the law of the jurisdiction governing
perfection prior to the effective date of this Act required the filing of the pre-effective-date financing statement in both a central filing
office and a local filing office, then an identification of the filing in the central filing office suffices for purposes of this subsection
(c)(2) of this section; and
(3) indicate that the pre-effective-date financing statement remains effective.
(79 Del. Laws, c. 15, § 28.)
§ 9-807. Amendment of pre-effective-date financing statement.
(a) Pre-effective-date financing statement. — In this section, “pre-effective-date financing statement” means a financing statement filed
before this Act takes effect.
(b) Applicable law. — After this Act takes effect, a person may add or delete collateral covered by, continue or terminate the
effectiveness of, or otherwise amend the information provided in, a pre-effective-date financing statement only in accordance with the law
of the jurisdiction governing perfection as provided in Article 9 as amended by this Act. However, the effectiveness of a pre-effectivedate financing statement also may be terminated in accordance with the law of the jurisdiction in which the financing statement is filed.
(c) Method of amending: general rule. — Except as otherwise provided in subsection (d), if the law of this State governs perfection of
a security interest, the information in a pre-effective-date financing statement may be amended after this Act takes effect only if:
(1) the pre-effective-date financing statement and an amendment are filed in the office specified in Section 9-501;
(2) an amendment is filed in the office specified in Section 9-501 concurrently with, or after the filing in that office of, an initial
financing statement that satisfies Section 9-806(c); or
(3) an initial financing statement that provides the information as amended and satisfies Section 9-806(c) is filed in the office specified
in Section 9-501.
(d) Method of amending: continuation. — 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 9-805(c) and (e) or 9-806.
(e) Method of amending: additional termination rule. — Whether or not the law of this State governs perfection of a security interest,
the effectiveness of a pre-effective-date financing statement filed in this State may be terminated after this Act takes effect by filing a
termination statement in the office in which the pre-effective-date financing statement is filed, unless an initial financing statement that
satisfies Section 9-806(c) has been filed in the office specified by the law of the jurisdiction governing perfection as provided in Article
9 as amended by this Act as the office in which to file a financing statement.
(79 Del. Laws, c. 15, § 28.)
§ 9-808. Person 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 this Act takes effect; or
(B) to perfect or continue the perfection of a security interest.
(79 Del. Laws, c. 15, § 28.)
§ 9-809. Priority.
This Act determines the priority of conflicting claims to collateral. However, if the relative priorities of the claims were established
before this Act takes effect, former Article 9 of the Uniform Commercial Code determines priority.
(79 Del. Laws, c. 15, § 28.)
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Subtitle I
Uniform Commercial Code
Article 10
Effective Date and Repealer
§ 10-101. Effective date.
This subtitle applies to transactions entered into and events occurring after June 30, 1967.
(5A Del. C. 1953, § 10-101; 55 Del. Laws, c. 349.)
§ 10-102. Specific repealer; provision for transition.
(1) The following acts and all other acts and parts of acts inconsistent herewith are hereby repealed:
Uniform Negotiable Instruments Act, Chapter 1 of Title 6.
Uniform Warehouse Receipts Act, Chapter 5 of Title 6.
Uniform Sales Act, Chapter 7 of Title 6.
Uniform Bills of Lading Act, Chapter 3 of Title 6.
Uniform Stock Transfer Act, Subchapter VI, Chapter 1, Title 8.
Uniform Conditional Sales Act, Chapter 9 of Title 6.
Uniform Trust Receipts Act, Chapter 11 of Title 6.
Bulk Sales Act, Chapter 21 of Title 6.
Chattel Mortgages Act, Chapter 23 of Title 25.
Factor’s Lien Act, Chapter 33 of Title 25.
Assignment of Accounts Receivable Act, Chapter 18 of Title 6.
Section 925 of Title 5, Delaware Code.
(2) Transactions validly entered into before the effective date specified in Section 10-101 and the rights, duties and interests flowing
from them remain valid thereafter and may be terminated, completed, consummated or enforced as required or permitted by any statute
or other law amended or repealed by this subtitle as though such repeal or amendment had not occurred.
(5A Del. C. 1953, § 10-102; 55 Del. Laws, c. 349.)
§ 10-103. General repealer.
Except as provided in the following section, all acts and parts of acts inconsistent with this subtitle are repealed.
(5A Del. C. 1953, § 10-103; 55 Del. Laws, c. 349.)
§ 10-104. Laws not repealed [Repealed].
Repealed by 74 Del. Laws, c. 332, § 67, eff. Jan. 1, 2005.
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Subtitle I
Uniform Commercial Code
Article 11
Effective Date and Transition Provisions
§ 11-101. Effective date and definitions.
(1) This Act shall become effective on January 1, 1984.
(2) As used in this Article, unless the context otherwise requires:
(a) “Prior Uniform Commercial Code” means the Uniform Commercial Code as in effect prior to the effective date of this Act.
(b) “Revised Uniform Commercial Code” means the Uniform Commercial Code as amended by this Act.
(64 Del. Laws, c. 152, § 8.)
§ 11-102. Preservation of old transition provision.
Article 10 shall continue to apply to the Revised Uniform Commercial Code and for this purpose the Prior Uniform Commercial Code
and the Revised Uniform Commercial Code shall be considered 1 continuous statute.
(64 Del. Laws, c. 152, § 8.)
§ 11-103. Transition — General rule.
Transactions validly entered into after June 30, 1967, and before January 1, 1984, and which were subject to the Prior Uniform
Commercial Code and which would be subject to the Revised Uniform Commercial Code if they had been entered into after this Act takes
effect, and the rights, duties and interests flowing from such transactions, remain valid after this Act takes effect and may be terminated,
completed, consummated and enforced as required or permitted by the Revised Uniform Commercial Code. Security interests arising
out of such transactions which are perfected when this Act becomes effective shall remain perfected until they lapse as provided in the
Revised Uniform Commercial Code, and may be continued as permitted by the Revised Uniform Commercial Code, except as stated
in Section 11-105.
(64 Del. Laws, c. 152, § 8.)
§ 11-104. Transition provision on change of requirement of filing.
A security interest for the perfection of which filing or the taking of possession was required under the Prior Uniform Commercial
Code and which attached prior to the effective date of this Act but was not perfected shall be deemed perfected on the effective date of this
Act if the Revised Uniform Commercial Code permits perfection without filing or authorizes filing in the office or offices where a prior
ineffective filing was made, provided all steps required for perfection under the Revised Uniform Commercial Code have been taken.
(64 Del. Laws, c. 152, § 8.)
§ 11-105. Transition provision on change of place of filing.
(1) A financing statement or continuation statement filed prior to January 1, 1984, which shall not have lapsed prior to January 1, 1984,
shall remain effective for the period provided in the Prior Uniform Commercial Code, but not less than 5 years after the filing.
(2) With respect to any collateral acquired by the debtor subsequent to this Act becoming effective, any effective financing statement or
continuation statement described in this section shall apply only if the filing or filings are in the office or offices that would be appropriate
to perfect the security interests in the new collateral under the Revised Uniform Commercial Code.
(3) The effectiveness of any financing statement or continuation statement filed prior to January 1, 1984, may be continued by a
continuation statement as permitted by the Revised Uniform Commercial Code, except that:
(a) If the Revised Uniform Commercial Code requires a filing in an office where there was no previous financing statement, a new
financing statement conforming to Section 11-106 shall be filed in that office; and
(b) If the financing statement or continuation statement relates to a security interest that cannot be perfected by filing under the
Revised Uniform Commercial Code, this subsection shall be inapplicable.
(4) If the recording of a mortgage of real estate would have been effective as a fixture filing of goods described therein if the Revised
Uniform Commercial Code had been in effect on the date of recording the mortgage, the recorded mortgage shall be deemed effective as
a fixture filing as to such goods under former subsection (6) of Section 9-402 [see now Section 9-502, generally] of the Revised Uniform
Commercial Code on the effective date of this Act.
(64 Del. Laws, c. 152, § 8.)
§ 11-106. Required refilings.
(1) If a security interest is perfected or has priority when this Act takes effect as to all persons or as to certain persons without any
filing or recording, and if the filing of a financing statement would be required for the perfection or priority of the security interest against
those persons under the Revised Uniform Commercial Code, the perfection and priority rights of the security interest continue until 3
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years after this Act takes effect. The perfection will then lapse unless a financing statement is filed as provided in subsection (4) or unless
the security interest is perfected otherwise than by filing.
(2) If a security interest is perfected when this Act takes effect under a law other than the Uniform Commercial Code which requires no
further filing, refiling or recording to continue its perfection, perfection continues until and will lapse 3 years after this Act takes effect,
unless a financing statement is filed as provided in subsection (4), unless the security interest is perfected otherwise than by filing, or
unless under subsection (3) of former Section 9-302 [see now subsection (a) of Section 9-311] the other law continues to govern filing.
(3) If a security interest is perfected by a filing, refiling or recording under a law repealed by this Act (other than any part of the Prior
Uniform Commercial Code) which required further filing, refiling or recording to continue its perfection, perfection continues and will
lapse on the date provided by the law so repealed for such further filing, refiling or recording unless before such date a financing statement
is filed as provided in subsection (4) or unless before such date the security interest is perfected otherwise than by filing.
(4) A financing statement may be filed within 6 months before the perfection of a security interest would otherwise lapse. Any such
financing statement may be signed by either the debtor or the secured party. It must identify the security agreement, statement or notice
(however denominated in any statute or other law repealed or modified by this Act), state the office where and the date when the last filing,
refiling or recording, if any, was made with respect thereto, and the filing number, if any, or book and page, if any, of recording and further
state that the security agreement, statement or notice, however denominated, in another filing office under the Uniform Commercial Code
or under any statute or other law repealed or modified by this Act is still effective. Former Section 9-401 and former Section 9-103
determine the proper place to file such a financing statement. Except as specified in this subsection, the provisions of former Section
9-403(3) [see now subsections (d) and (e) of Section 9-515, generally] for continuation statements apply to such a financing statement.
(64 Del. Laws, c. 152, § 8.)
§ 11-107. Transition provisions as to uncertificated securities.
(1) The persons shown on the books of the issuer as the holders of uncertificated securities outstanding when this Act becomes effective
shall be deemed to be the registered owners thereof. Prior to the 90th day after this Act takes effect, the issuer of any uncertificated security
outstanding when this Act takes effect shall send to the registered owner a written statement containing:
(a) A description of the issue of which the uncertificated security is a part;
(b) The number of shares or other units owned by the registered owner;
(c) The name and address and (if known to the issuer) any taxpayer identification number of the registered owner;
(d) A notation of any liens or restrictions of the issuer and any adverse claims (as to which the issuer has a duty under Section
8-403(d)) to which the uncertificated security is or may be subject at the time when the statement is prepared or a statement that there
are no such liens, restrictions or adverse claims; and
(e) The date the statement was prepared.
Statements sent pursuant to this subsection shall be signed by or on behalf of the issuer; shall be identified as “initial transaction
statement”; and shall be deemed to be initial transaction statements for the purposes of Article 8 of the Revised Uniform Commercial Code.
(2) If a security interest in an uncertificated security outstanding prior to January 1, 1984, is perfected or has priority as to all persons
or as to certain persons when this Act takes effect by virtue of the previous filing of a financing statement, and if other acts would be
required for the perfection or priority of the security interest against those persons under the Revised Uniform Commercial Code, the
perfection and priority rights of the security interest shall continue and shall lapse on the date provided by the Prior Uniform Commercial
Code (whether or not a continuation statement is filed with respect to such security interest) unless the security interest is perfected in
accordance with the Revised Uniform Commercial Code.
(3) If an issuer’s lien or restriction on an uncertificated security outstanding prior to January 1, 1984, or a term of such a security is
valid and effective against all persons or against certain persons when this Act takes effect, and if the notation of such lien, restriction
or term on an initial transaction statement would be required for its validity or effectiveness against those persons under the Revised
Uniform Commercial Code, such lien, restriction or term shall remain valid and effective until the earlier of (i) the time when an initial
transaction statement is sent by the issuer to the registered owner (after which the validity and effectiveness of the lien, restriction or term
shall be governed by the Revised Uniform Commercial Code), or (ii) 3 years from the effective date of this Act. If an initial transaction
statement is not sent to the registered owner of an uncertificated security outstanding when this Act takes effect within 3 years after this
Act takes effect, any issuer’s lien required to be noted thereon shall cease to be valid, and any restriction or term required to be noted
thereon shall cease to be effective except as to those persons against whom an unnoted restriction or term would be effective under Article
8 of the Revised Uniform Commercial Code.
(64 Del. Laws, c. 152, § 8.)
§ 11-108. Transition provisions as to priorities.
Except as otherwise provided in this Article, the Prior Uniform Commercial Code shall apply to any questions of priority if the positions
of the parties were fixed prior to January 1, 1984. In other cases questions of priority shall be determined by the Revised Uniform
Commercial Code.
(64 Del. Laws, c. 152, § 8.)
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§ 11-109. Presumption that rule of law continues unchanged.
Unless a change in law has clearly been made, the Revised Uniform Commercial Code shall be deemed declaratory of the meaning
of the Prior Uniform Commercial Code.
(64 Del. Laws, c. 152, § 8.)
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Subtitle II
Other Laws Relating to Commerce and Trade
Chapter 12
Delaware False Claims and Reporting Act
§ 1201. Liability for certain acts.
(a) Any person who:
(1) Knowingly presents, or causes to be presented a false or fraudulent claim for payment or approval;
(2) Knowingly makes, uses or causes to be made or used a false record or statement material to a false or fraudulent claim;
(3) Conspires to commit a violation of paragraph (a)(1), (2), (4), (5), (6) or (7) of this section;
(4) Has possession, custody or control of property or money used or to be used by the Government and knowingly delivers or causes
to be delivered, less than all of that money or property;
(5) Is authorized to make or deliver a document certifying receipt of property used or to be used by the Government and, intending
to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true;
(6) Knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government
who may not lawfully sell or pledge the property; or
(7) Knowingly makes, uses, or causes to be made or used a false record or statement material to an obligation to pay or transmit
money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay
or transmit money or property to the Government
shall be liable to the Government for a civil penalty of not less than $10,957 and not more than $21,916, as adjusted by the Federal
Civil Penalties Inflation Adjustment Act of 2015 (28 U.S.C. § 2461, note), for each act constituting a violation of this section, plus 3 times
the amount of damages which the Government sustains because of the act of that person.
(b) Notwithstanding the foregoing, the court may assess not less than 2 times the amount of damages which the Government sustains
because of the act of the person, if:
(1) The person committing the violation of this subsection furnished officials of the Government responsible for investigating false
claims violations with all information known to such person about the violation within 30 days after the date on which the defendant
first obtained the information;
(2) Such person fully cooperated with any government investigation of such violations; and
(3) At the time such person furnished the Government with the information about the violation, no criminal prosecution, civil action,
investigation or administrative action had commenced under this title with respect to such violation, and the person did not have actual
knowledge of the existence of an investigation into such violations.
A person violating this subsection shall also be liable for the costs of a civil action brought to recover any such penalty or damages,
including payment of reasonable attorney’s fees and costs.
(c) The Superior Court shall have jurisdiction of all offenses under this chapter.
(72 Del. Laws, c. 370, § 1; 77 Del. Laws, c. 166, §§ 1-4; 79 Del. Laws, c. 141, § 1; 81 Del. Laws, c. 438, § 1.)
§ 1202. Definitions.
As used in this chapter:
(1) “Claim” means any request or demand, whether under a contract or otherwise, for money or property and whether or not the
Government has title to the money or property, that:
a. Is presented to an officer, employee, or agent of the Government; or
b. Is made to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government’s behalf
or to advance a Government program or interest, and if the Government:
1. Provides or has provided any portion of the money or property requested or demanded; or
2. Will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or
demanded.
“Claim” does not include requests or demands for money or property that the Government has paid to an individual as compensation
for employment with the Government or as an income subsidy with no restrictions on that individual’s use of the money or property.
(2) “Government” includes all departments, boards or commissions of the executive branch of the State, all political subdivisions of
the State, the Delaware Department of Transportation and all state and municipal authorities, all organizations created by or pursuant to
a statute which declares in substance that such organization performs or has for its purpose the performance of an essential governmental
function, and all organizations, entities or persons receiving funds of the State where the act complained of pursuant to this chapter
relates to the use of such funds of the State.
(3) “Knowing” and “knowingly” mean that a person, with respect to information:
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a. Has actual knowledge of the information;
b. Acts in deliberate ignorance of the truth or falsity of the information; or
c. Acts in reckless disregard of the truth or falsity of the information, and no proof of specific intent to defraud is required.
(4) “Material” includes anything having a natural tendency to influence, or be capable of influencing, the payment or receipt of
money or property.
(5) “Obligation” includes an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee,
or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any
overpayment.
(72 Del. Laws, c. 370, § 1; 77 Del. Laws, c. 166, §§ 5, 6; 79 Del. Laws, c. 141, § 1.)
§ 1203. Civil actions for false claims.
(a) Responsibilities of the Attorney General. — The Attorney General shall diligently investigate suspected violations under this chapter.
If the Attorney General finds that a person has violated or is violating the provisions of this chapter, the Attorney General may bring a
civil action under this section against the person.
(b) Private actions. — (1) A private civil action may be brought by any person or labor organization as defined by § 1107A(d) of Title
19 (hereinafter “private party” or “party”) for a violation of this chapter on behalf of the party bringing suit and for the government. The
action shall be brought in the name of the government. The action may be dismissed only if the court and the Department of Justice give
written consent to the dismissal and their reasons for consenting.
(2) A copy of the complaint and written disclosure of substantially all material evidence and information the private party possesses
shall be served on the Department of Justice pursuant to Rules 4 and 5 of the Superior Court Civil Rules. The complaint shall be filed
in camera and shall remain under seal for at least 60 days. The complaint shall not be served on the defendant until the expiration
of 60 days or any extension approved under paragraph (b)(3) of this section. Within 60 days after receiving a copy of the complaint,
the Department of Justice shall conduct an investigation of the factual allegations and legal contentions made in the complaint. The
Department of Justice may elect to intervene and proceed with the action within 60 days after it receives the complaint, the material
evidence and information.
(3) The Department of Justice may, for good cause shown, move the court for extensions of the time during which the complaint
remains under seal under paragraph (b)(2) of this section. Any such motion may be supported by affidavits or other submissions in
camera. The defendant shall not be required to respond to any complaint filed under this section until 20 days after the complaint is
unsealed and served upon the defendant pursuant to Rule 4 of the Superior Court Civil Rules.
(4) Before the expiration of the 60-day period or any extensions obtained under paragraph (b)(3) of this section, or within 20 days
of being notified by the court that the seal has expired, the Department of Justice shall:
a. Proceed with the action, in which case the action shall be conducted by the Department of Justice; or
b. Notify the court that it declines to take over the action, in which case the private party bringing the action shall have the right
to conduct the action.
(5) When a party brings an action under this subsection, no party other than the Department of Justice may intervene or bring a
related action based on the facts underlying the pending action.
(72 Del. Laws, c. 370, § 1; 77 Del. Laws, c. 166, §§ 7-12; 79 Del. Laws, c. 141, § 1.)
§ 1204. Rights of the parties to qui tam actions.
(a) If the Department of Justice proceeds with the action, it shall have the primary responsibility for prosecuting the action, and shall
not be bound by an act of the party bringing the action. Such party shall have the right to continue as a party to the action, subject to the
limitations set forth in subsections (b), (c) and (e) of this section.
(b) The Department of Justice may dismiss the action notwithstanding the objections of the party initiating the action if the party has
been notified by the Department of Justice of the filing of the motion and the court has provided the party with an opportunity for a
hearing on the motion.
(c) The Department of Justice may settle the action with the defendant notwithstanding the objections of the party initiating the action
if the court determines after a hearing that the proposed settlement is fair, adequate and reasonable under all the circumstances. Upon a
showing of good cause, such hearing may be held in camera.
(d) If the Department of Justice elects not to proceed with the action, the party who initiated the action shall have the right to conduct
the action. If the Department of Justice so requests, it shall be served with copies of the pleadings filed in the action and shall be supplied
with copies of all deposition transcripts (at the Department of Justice’s expense). When a party proceeds with the action, the court, without
limiting the status and rights of the party initiating the action, may nevertheless permit the Department of Justice to intervene at a later
date upon a showing of good cause.
(e) Whether or not the Department of Justice proceeds with the action, upon a showing by the Department of Justice that certain actions
of discovery by the party initiating the action would interfere with the Department of Justice’s investigation or prosecution of a criminal
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or civil matter arising out of the same facts, the court may stay such discovery for a period of not more than 60 days. Such a showing
shall be conducted in camera. The court may extend the 60-day period upon a further showing in camera that the Department of Justice
has pursued the criminal or civil investigation or proceedings with reasonable diligence and any proposed discovery in the civil action
will interfere with the ongoing criminal or civil investigation or proceedings.
(f) Notwithstanding § 1203(b) of this title, the Department of Justice may elect to pursue its claim through any available alternate
remedy, including any administrative proceeding to determine a civil money penalty. If any such alternate remedy is pursued in another
proceeding, the party initiating the action shall have the same rights in such proceeding as such party would have had if the action had
continued under this chapter; provided however, that no insurer subject to the insurance fraud provisions of Chapter 24 of Title 18 shall
have a cause of action pursuant to this chapter. Any finding of fact or conclusion of law made in such other proceeding that has become
final shall be conclusive on all parties to an action under this chapter. For purposes of the preceding sentence, a finding or conclusion
is final if it has been fully determined on appeal to the appropriate court, if all time for filing such appeal with respect to the finding or
conclusion has expired, or if the finding or conclusion is not subject to judicial review.
(72 Del. Laws, c. 370, § 1; 77 Del. Laws, c. 166, §§ 13-18.)
§ 1205. Award to qui tam plaintiff.
(a) If the Department of Justice proceeds with an action brought by a party under § 1203(b) of this title, such party shall, subject to
the second sentence of this subsection, receive at least 15 percent but not more than 25 percent of the proceeds of the action or settlement
of the claim, depending upon the extent to which the party substantially contributed to the prosecution of the action. Where the action
is one which the court finds to be based primarily on disclosures of specific information (other than information provided by the party
bringing the action) relating to allegations or transactions in a criminal, civil or administrative hearing, or from the news media, the court
may award such sums as it considers appropriate, but in no case more than 10 percent of the proceeds, taking into account the significance
of the information and the role of the party bringing the action in advancing the case to litigation. Any payment to a party under the
first or second sentence of this paragraph shall be made from the proceeds. Any such party shall also receive an amount for reasonable
expenses which the court finds to have been necessarily incurred, plus reasonable attorneys’ fees and costs. In determining the amount
of reasonable attorneys’ fees and costs, the court shall consider, without limitation, whether such fees and costs were necessary to the
prosecution of the action, were incurred for activities which were duplicative of the activities of the Department of Justice in prosecuting
the case, or were repetitious, irrelevant or for purposes of harassment, or caused the defendant undue burden or unnecessary expense. All
such expenses, fees and costs shall be awarded against the defendant.
(b) If the Department of Justice does not proceed with an action under this chapter, the party bringing the action or settling the claim
shall receive an amount which the court decides is reasonable for collecting the civil penalty and damages. The amount shall be not less
than 25 percent and not more than 30 percent of the proceeds of the action or settlement and shall be paid out of such proceeds. Such party
shall also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys’
fees and costs. In determining the amount of reasonable attorneys’ fees and costs, the court shall consider, without limitation, whether
such fees and costs were necessary to the prosecution of the action, were incurred for activities which were repetitious, irrelevant or
for purposes of harassment, or caused the defendant undue burden or unnecessary expense. All such expenses, fees, and costs shall be
awarded against the defendant.
(c) Whether or not the Department of Justice proceeds with the action, if the court finds that the action was brought by a party who
planned and initiated the violation upon which the action was brought, then the court may, to the extent the court considers appropriate,
reduce the share of the proceeds of the action which the party would otherwise receive under subsection (a) or (b) of this section, taking
into account the role of that party in advancing the case to litigation and any relevant circumstances pertaining to the violation. If the party
bringing the action is convicted of criminal conduct arising from that party’s own role in the violation of this chapter, that party shall be
dismissed from the civil action and shall not receive any share of the proceeds of the action. Such dismissal shall not prejudice the right
of the Department of Justice to continue the action on behalf of the government.
(d) If the Department of Justice does not proceed with the action and the person bringing the action conducts the action, the court may
award to the defendant its reasonable attorneys’ fees and expenses if the defendant prevails in the action and the court finds that the claim
of the person bringing the action was clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment.
(72 Del. Laws, c. 370, § 1; 70 Del. Laws, c. 186, § 1; 77 Del. Laws, c. 166, §§ 19-22.)
§ 1206. Certain actions barred.
(a) In no event may a person bring an action under this chapter which is based upon allegations or transactions which are the subject
of a civil suit or an administrative proceeding in which the government is already a party.
(b) The court shall dismiss an action or claim under this section, unless opposed by the government, if substantially the same allegations
or transactions as alleged in the action or claim were publicly disclosed:
(1) In any criminal, civil, or administrative hearing in which the government or its agent is a party;
(2) In any government-generated report, hearing, audit, or investigation; or
(3) From the news media.
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The requirement to dismiss actions or claims as set forth in this subsection shall not apply to actions brought by the Attorney General
or where the person bringing the action is an original source of the information.
(c) For purposes of this section, “original source” means an individual who either:
(1) Prior to a public disclosure under subsection (b) of this section, has voluntarily disclosed to the government the information on
which allegations or transactions in a claim are based; or
(2) Who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has
voluntarily provided the information to the government before filing an action under this section.
(72 Del. Laws, c. 370, § 1; 77 Del. Laws, c. 166, § 23; 79 Del. Laws, c. 141, § 1.)
§ 1207. Government not liable for certain expenses.
No Government shall be liable for expenses which a party incurs in bringing an action under this chapter.
(72 Del. Laws, c. 370, § 1.)
§ 1208. Employee protection.
(a) Any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole, if that
employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in
the terms and conditions of employment because of lawful acts done by the employee, contractor, agent or associated others in furtherance
of an action under this chapter or other efforts to stop 1 or more violations of this chapter.
Such relief shall include reinstatement with the same seniority status that employee, contractor, or agent would have had but for the
discrimination, 2 times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result
of the discrimination, including litigation costs and reasonable attorneys’ fees. An action under this subsection may be brought in the
Superior Court of the State of Delaware in and for the county where the violation is alleged to have occurred. A civil action under this
subsection may not be brought more than 3 years after the date when the alleged retaliation occurred.
(b) It shall be the duty of every employer of more than 15 employees to post and maintain in a place accessible to its employees and
where they normally pass a summary of this chapter upon request and without charge. Such summaries shall be provided by the Delaware
Department of Justice to the Delaware Department of Labor for distribution. As an alternative to posting, such employer may establish
written policies for all employees that provide an explanation of state and federal False Claims Act [this chapter and 31 U.S.C. § 3729
et seq.] provisions and a resource for obtaining additional information about the law.
(72 Del. Laws, c. 370, § 1; 70 Del. Laws, c. 186, § 1; 77 Del. Laws, c. 166, § 24; 79 Del. Laws, c. 141, § 1.)
§ 1209. False claims and reporting procedure.
(a) A civil action under this chapter may not be brought:
(1) More than 6 years after the date on which the violation is committed; or
(2) More than 3 years after the date when facts material to the right of action are known or reasonably should have been known by
the official of the Government charged with responsibility to act in the circumstances,
but in no event more than 10 years after the date on which the violation is committed, whichever occurs last.
(b) In any action brought under this chapter, the Department of Justice or the private party shall be required to prove all essential
elements of the cause of action, including damages, by a preponderance of the evidence.
(c) Notwithstanding any other provision of law, the Delaware Rules of Criminal Procedure, or the Delaware Rules of Civil Procedure,
a final judgment rendered in favor of the Government in any criminal proceeding charging fraud or false statements, whether upon a
verdict after trial or upon a plea of guilty, shall estop the defendant from denying the essential elements of the offense in any action which
involves the same transaction as in the criminal proceeding and which is brought under this chapter.
(d) Upon motion of the Department of Justice, the court shall have the power to grant other equitable relief, including temporary
injunctive relief, as is necessary to prevent the transfer, concealment or dissipation of the illegal proceeds, or to protect the public.
(e) For statute of limitations purposes, any Government pleading shall relate back to the filing date of the complaint of the person who
originally brought the action, to the extent that the claim of the Government arises out of the conduct, transactions, or occurrences set
forth, or attempted to be set forth, in the prior complaint of that person.
(72 Del. Laws, c. 370, § 1; 77 Del. Laws, c. 166, §§ 25, 26; 79 Del. Laws, c. 141, § 1.)
§ 1210. Annual reporting requirement.
On August 15, 2009, and annually on July 16, the Department of Justice shall submit to the Delaware legislature a report containing
the following information:
(1) The number of cases the Department of Justice has filed during the previous calendar year under this chapter;
(2) The number of cases private individuals filed under this chapter during the previous calendar year, including those cases that
remain under seal, and specifying:
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a. The state or federal courts in which those cases were filed and the number of cases filed in each court;
b. The state program or agency that is involved in each case;
c. The number of cases filed by private individuals who previously had filed an action based on the same or similar transactions
or allegations under the federal False Claims Act [31 U.S.C. § 3729 et seq.] or the false claims act of another state; and
d. The amount recovered by the State under this section in settlement, damages, penalties, and litigation costs.
(77 Del. Laws, c. 166, § 27.)
§ 1211. Severability of noncompliant provisions.
Any provision of this chapter that the federal government determines does not comply with the requirements for state false claims acts
set forth in the Deficit Reduction Act of 2005 (Pub. L. 109-171, 120 Stat. 4) shall be repealed to the extent that this chapter is inconsistent
with the Deficit Reduction Act.
(77 Del. Laws, c. 166, § 28.)
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Subtitle II
Other Laws Relating to Commerce and Trade
Chapter 12A
Uniform Electronic Transactions Act
§ 12A-101. Short title.
This chapter may be cited as the “Uniform Electronic Transactions Act.”
(72 Del. Laws, c. 457, § 1.)
§ 12A-102. Definitions.
In this chapter:
(1) “Agreement” means the bargain of the parties in fact, as found in their language or inferred from other circumstances and from
rules, regulations and procedures given the effect of agreements under laws otherwise applicable to a particular transaction.
(2) “Automated transaction” means a transaction conducted or performed, in whole or in part, by electronic means or electronic
records, in which the acts or records of 1 or both parties are not reviewed by an individual in the ordinary course in forming a contract,
performing under an existing contract, or fulfilling an obligation required by the transaction.
(3) “Computer program” means a set of statements or instructions to be used directly or indirectly in an information processing
system in order to bring about a certain result.
(4) “Contract” means the total legal obligation resulting from the parties“ agreement as affected by this chapter and other applicable
law.
(5) “Electronic” means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic or similar
capabilities.
(6) “Electronic agent” means a computer program or an electronic or other automated means used independently to initiate an action
or respond to electronic records or performances in whole or in part, without review or action by an individual.
(7) “Electronic postmark certificate” means evidentiary proof provided to the sender or recipient of an electronic record that the
electronic record:
a. Was postmarked by a postal authority with a valid electronic postmark on the date and time indicated;
b. Was transmitted in a certain form on a specific date and time; and
c. Was sent by the person indicated, to the person indicated, and on the date and time indicated.
(8) “Electronic record” means a record created, generated, sent, communicated, received or stored by electronic means.
(9) “Electronic signature” means an electronic sound, symbol or process attached to or logically associated with a record and executed
or adopted by a person with the intent to sign the record.
(10) “Governmental agency” means an executive, legislative or judicial agency, department, board, commission, authority, institution
or instrumentality of the federal government or of a State or of a county, municipality or other political subdivision of a State.
(11) “Information” means data, text, images, sounds, codes, computer programs, software, databases or the like.
(12) “Information processing system” means an electronic system for creating, generating, sending, receiving, storing, displaying
or processing information.
(13) “Person” means an individual, corporation, statutory trust, business trust, estate, trust, partnership, limited liability company,
association, joint venture, governmental agency, public corporation or any other legal or commercial entity.
(14) “Postal authority” means:
a. The United States Postal Service or other national public or private mail delivery service that provides electronic postmarks; or
b. A public or private entity that has the regulatory authority or legal responsibility for providing electronic postmarks.
(15) “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.
(16) “Security procedure” means a procedure employed for the purpose of verifying that an electronic signature, record or
performance is that of a specific person or for detecting changes or errors in the information in an electronic record. The term
includes a procedure that requires the use of algorithms or other codes, identifying words or numbers, encryption, or callback or other
acknowledgment procedures.
(17) “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. The term includes an Indian tribe or band, or Alaskan
native village, which is recognized by federal law or formally acknowledged by a state.
(18) “Transaction” means an action or set of actions occurring between 2 or more persons relating to the conduct of business,
commercial, or governmental affairs.
(72 Del. Laws, c. 457, § 1; 73 Del. Laws, c. 329, § 8; 76 Del. Laws, c. 83, § 1; 76 Del. Laws, c. 257, §§ 1, 2.)
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§ 12A-103. Scope.
(a) Except as otherwise provided in subsection (b) of this section, this chapter applies to electronic records and electronic signatures
relating to a transaction.
(b) This chapter does not apply to a transaction to the extent it is governed by:
(1) A law governing the creation and execution of wills or codicils;
(2) The Uniform Commercial Code other than Sections 1-107 [see now Section 1-306] and 1-206 [former version of Section 1-206,
to which this reference referred, has been repealed], Article 2, and Article 2A;
(3) The Uniform Computer Information Transactions Act;
(4) The General Corporation Law of the State [§§ 101 to 398 of Title 8], the Delaware Professional Service Corporation Act [§
601 et seq. of Title 8], the Delaware Revised Uniform Partnership Act [§ 15-101 et seq. of this title], the Delaware Revised Uniform
Limited Partnership Act [§ 17-101 et seq. of this title], the Delaware Limited Liability Company Act [§ 18-101 et seq. of this title],
the Delaware Uniform Partnership Law and the Delaware Statutory Trust Act [§ 3801 et seq. of Title 12];
(5) The Corporation Law for State Banks and Trust Companies, Credit Card Institutions and the Corporation Law for State Savings
Banks in Chapters 7, 15 and 16, respectively, of Title 5.
(c) This chapter applies to an electronic record or electronic signature otherwise excluded from the application of this chapter under
subsection (b) of this section to the extent it is governed by a law other than those specified in subsection (b) of this section.
(d) A transaction subject to this chapter is also subject to other applicable substantive law.
(72 Del. Laws, c. 457, § 1; 73 Del. Laws, c. 329, § 9; 83 Del. Laws, c. 69, § 1.)
§ 12A-104. Prospective application.
This chapter applies to any electronic record or electronic signature created, generated, sent, communicated, received, or stored on
or after July 14, 2000.
(72 Del. Laws, c. 457, § 1.)
§ 12A-105. Use of electronic records and electronic signatures; variation by agreement.
(a) This chapter does not require a record or signature to be created, generated, sent, communicated, received, stored or otherwise
processed or used by electronic means or in electronic form.
(b) This chapter applies only to transactions between parties each of which has agreed to conduct transactions by electronic means.
Whether the parties agree to conduct a transaction by electronic means is determined from the context and surrounding circumstances,
including the parties’ conduct.
(c) A party that agrees to conduct a transaction by electronic means may refuse to conduct other transactions by electronic means. The
right granted by this subsection may not be waived by agreement.
(d) Except as otherwise provided in this chapter, the effect of any of its provisions may be varied by agreement. The presence in certain
provisions of this chapter of the words “unless otherwise agreed,” or words of similar import, does not imply that the effect of other
provisions may not be varied by agreement.
(e) Whether an electronic record or electronic signature has legal consequences is determined by this chapter and other applicable law.
(72 Del. Laws, c. 457, § 1.)
§ 12A-106. Construction and application.
This chapter must be construed and applied:
(1) To facilitate electronic transactions consistent with other applicable law;
(2) To be consistent with reasonable practices concerning electronic transactions and with the continued expansion of those practices;
and
(3) To effectuate its general purpose to make uniform the law with respect to the subject of this chapter among states enacting it.
(72 Del. Laws, c. 457, § 1.)
§ 12A-107. Legal recognition of electronic records, electronic signatures, and electronic contracts.
(a) A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.
(b) A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.
(c) If a law requires a record to be in writing, an electronic record satisfies the law.
(d) If a law requires a signature, an electronic signature satisfies the law.
(72 Del. Laws, c. 457, § 1.)
§ 12A-108. Provision of information in writing; presentation of records.
(a) If parties have agreed to conduct a transaction by electronic means and a law requires a person to provide, send or deliver information
in writing to another person, the requirement is satisfied if the information is provided, sent or delivered, as the case may be, in an
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electronic record capable of retention by the recipient at the time of receipt. An electronic record is not capable of retention by the recipient
if the sender or its information processing system inhibits the ability of the recipient to print or store the electronic record.
(b) If a law other than this chapter requires a record (i) to be posted or displayed in a certain manner, (ii) to be sent, communicated or
transmitted by a specified method, or (iii) to contain information that is formatted in a certain manner, the following rules apply:
(1) The record must be posted or displayed in the manner specified in the other law.
(2) Except as otherwise provided in paragraph (d)(2) of this section, the record must be sent, communicated or transmitted by the
method specified in the other law.
(3) The record must contain the information formatted in the manner specified in the other law.
(c) If a sender inhibits the ability of a recipient to store or print an electronic record, the electronic record is not enforceable against
the recipient.
(d) The requirements of this section may not be varied by agreement, but:
(1) To the extent a law other than this chapter requires information to be provided, sent or delivered in writing but permits that
requirement to be varied by agreement, the requirement under subsection (a) of this section that the information be in the form of an
electronic record capable of retention may also be varied by agreement;
(2) A requirement under a law other than this chapter to send, communicate or transmit a record by first-class mail, postage prepaid,
may be varied by agreement to the extent permitted by the other law; and
(3) A requirement under a law other than under this title to send, communicate, or transmit a record by registered or certified mail,
postage prepaid, or by regular mail is satisfied by an electronic record that:
a. Is addressed properly or otherwise directed properly to an information processing system that the recipient has designated; and
b. Provides a contractually obligated reliable and assured delivery to the recipient; and
c. Enters an information processing system that is outside the control of the sender; or
d. Enters a region of an information processing system that is under the control of the recipient; and
e. Is postmarked by a postal authority with an electronic postmark; and
f. Is authenticated by an electronic postmark certificate.
(e) An electronic record is subject to the same legal protections as the United States mail if:
(1) The electronic record meets the requirements of subsection (d) of this section; and
(2) The postal authority that postmarked the electronic record under paragraph (d)(3) of this section is the United States Postal Service.
(f) This section does not authorize the use of an electronic postmark or electronic postmark certificate for the service of a summons,
complaint, or other document for the purpose of obtaining jurisdiction over a defendant in a lawsuit.
(g) An electronic postmark may be used only with the mutual consent of both the sender and the recipient.
(72 Del. Laws, c. 457, § 1; 76 Del. Laws, c. 257, § 3.)
§ 12A-109. Attribution and effect of electronic record and electronic signature.
(a) An electronic record or electronic signature is attributable to a person if it was the act of the person. The act of the person may
be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the
electronic record or electronic signature was attributable.
(b) The effect of an electronic record or electronic signature attributed to a person under subsection (a) of this section is determined
from the context and surrounding circumstances at the time of its creation, execution, or adoption, including the parties’ agreement, if
any, and otherwise as provided by law.
(72 Del. Laws, c. 457, § 1.)
§ 12A-110. Effect of change or error.
If a change or error in an electronic record occurs in a transmission between parties to a transaction, the following rules apply:
(1) If the parties have agreed to use a security procedure to detect changes or errors and 1 party has conformed to the procedure,
but the other party has not, and the nonconforming party would have detected the change or error had that party also conformed, the
conforming party may avoid the effect of the changed or erroneous electronic record.
(2) In an automated transaction involving an individual, the individual may avoid the effect of an electronic record that resulted
from an error made by the individual in dealing with the electronic agent of another person if the electronic agent did not provide an
opportunity for the prevention or correction of the error and, at the time the individual learns of the error, the individual:
a. Promptly notifies the other person of the error and that the individual did not intend to be bound by the electronic record received
by the other person;
b. Takes reasonable steps, including steps that conform to the other person’s reasonable instructions, to return to the other person
or, if instructed by the other person, to destroy the consideration received, if any, as a result of the erroneous electronic record; and
c. Has not used or received any benefit or value from the consideration, if any, received from the other person.
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(3) If neither paragraph (1) nor paragraph (2) of this section applies, the change or error has the effect provided by other law, including
the law of mistake, and the parties’ contract, if any.
(4) Paragraphs (2) and (3) of this section may not be varied by agreement.
(72 Del. Laws, c. 457, § 1.)
§ 12A-111. Notarization and acknowledgment.
If a law requires a signature or record to be notarized, acknowledged, verified or made under oath, the requirement is satisfied if the
electronic signature of the person authorized to perform those acts, together with all other information required to be included by other
applicable law, is attached to or logically associated with the signature or record.
(72 Del. Laws, c. 457, § 1.)
§ 12A-112. Retention of electronic records; originals.
(a) If a law requires that a record be retained, the requirement is satisfied by retaining an electronic record of the information in the
record which:
(1) Accurately reflects the information set forth in the record after it was first generated in its final form as an electronic record
or otherwise; and
(2) Remains accessible for later reference.
(b) A requirement to retain a record in accordance with subsection (a) of this section does not apply to any information the sole purpose
of which is to enable the record to be sent, communicated or received.
(c) A person may satisfy subsection (a) of this section by using the services of another person if the requirements of that subsection
are satisfied.
(d) If a law requires a record to be presented or retained in its original form, or provides consequences if the record is not presented or
retained in its original form, that law is satisfied by an electronic record retained in accordance with subsection (a) of this section.
(e) If a law requires retention of a check, that requirement is satisfied by retention of an electronic record of the information on the
front and back of the check in accordance with subsection (a) of this section.
(f) A record retained as an electronic record in accordance with subsection (a) of this section satisfies a law requiring a person to retain
a record for evidentiary, audit, or like purposes, unless a law enacted after July 14, 2000, specifically prohibits the use of an electronic
record for the specified purpose.
(g) This section does not preclude a governmental agency of this State from specifying additional requirements for the retention of a
record subject to the agency’s jurisdiction.
(72 Del. Laws, c. 457, § 1.)
§ 12A-113. Admissibility in evidence.
In a proceeding, evidence of a record or signature may not be excluded solely because it is in electronic form.
(72 Del. Laws, c. 457, § 1.)
§ 12A-114. Automated transaction.
In an automated transaction, the following rules apply:
(1) A contract may be formed by the interaction of electronic agents of the parties, even if no individual was aware of or reviewed
the electronic agents’ actions or the resulting terms and agreements.
(2) A contract may be formed by the interaction of an electronic agent and an individual, acting on the individual’s own behalf or
for another person, including by an interaction in which the individual performs actions that the individual is free to refuse to perform
and which the individual knows or has reason to know will cause the electronic agent to complete the transaction or performance.
(3) The terms of the contract are determined by the substantive law applicable to it.
(72 Del. Laws, c. 457, § 1.)
§ 12A-115. Time and place of sending and receipt.
(a) Unless otherwise agreed between the sender and the recipient, an electronic record is sent when it:
(1) Is addressed properly or otherwise directed properly to an information processing system that the recipient has designated or
uses for the purpose of receiving electronic records or information of the type sent and from which the recipient is able to retrieve
the electronic record;
(2) Is in a form capable of being processed by that system; and
(3) Enters an information processing system outside the control of the sender or of a person that sent the electronic record on behalf
of the sender or enters a region of the information processing system designated or used by the recipient which is under the control
of the recipient.
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(b) Unless otherwise agreed between a sender and the recipient, an electronic record is received when:
(1) It enters an information processing system that the recipient has designated or uses for the purpose of receiving electronic records
or information of the type sent and from which the recipient is able to retrieve the electronic record; and
(2) It is in a form capable of being processed by that system.
(c) Subsection (b) of this section applies even if the place the information processing system is located is different from the place the
electronic record is deemed to be received under subsection (d) of this section.
(d) Unless otherwise expressly provided in the electronic record or agreed between the sender and the recipient, an electronic record
is deemed to be sent from the sender’s place of business and to be received at the recipient’s place of business. For purposes of this
subsection, the following rules apply:
(1) If the sender or recipient has more than 1 place of business, the place of business of that person is the place having the closest
relationship to the underlying transaction.
(2) If the sender or the recipient does not have a place of business, the place of business is the sender’s or recipient’s residence,
as the case may be.
(e) An electronic record is received under subsection (b) of this section even if no individual is aware of its receipt.
(f) Receipt of an electronic acknowledgment from an information processing system described in subsection (b) of this section
establishes that a record was received but, by itself, does not establish that the content sent corresponds to the content received.
(g) If a person is aware that an electronic record purportedly sent under subsection (a) of this section, or purportedly received under
subsection (b) of this section, was not actually sent or received, the legal effect of the sending or receipt is determined by other applicable
law. Except to the extent permitted by the other law, the requirements of this subsection may not be varied by agreement.
(72 Del. Laws, c. 457, § 1.)
§ 12A-116. Transferable records.
(a) In this section, “transferable record” means an electronic record that:
(1) Would be a note under Article 3 of this title or a document under Article 7 of this title if the electronic record were in writing; and
(2) The issuer of the electronic record expressly has agreed is a transferable record.
(b) A person has control of a transferable record if a system employed for evidencing the transfer of interests in the transferable record
reliably establishes that person as the person to which the transferable record was issued or transferred.
(c) A system satisfies subsection (b) of this section, and a person is deemed to have control of a transferable record, if the transferable
record is created, stored and assigned in such a manner that:
(1) A single authoritative copy of the transferable record exists which is unique, identifiable, and, except as otherwise provided in
paragraphs (c)(4), (5) and (6) of this section, unalterable;
(2) The authoritative copy identifies the person asserting control as:
(A) The person to which the transferable record was issued; or
(B) If the authoritative copy indicates that the transferable record has been transferred, the person to which the transferable record
was most recently transferred;
(3) The authoritative copy is communicated to and maintained by the person asserting control or its designated custodian;
(4) Copies or revisions that add or change an identified assignee of the authoritative copy can be made only with the consent of
the person asserting control;
(5) Each copy of the authoritative copy and any copy of a copy is readily identifiable as a copy that is not the authoritative copy; and
(6) Any revision of the authoritative copy is readily identifiable as authorized or unauthorized.
(d) Except as otherwise agreed, a person having control of a transferable record is the holder, as defined in § 1-201(21) of this title,
of the transferable record and has the same rights and defenses as a holder of an equivalent record or writing under this title, including,
if the applicable statutory requirements under § 3-302(a), 7-501 or 9-308 [former version of § 9-308, to which this reference referred,
has been repealed] of this title 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 endorsement are not required to obtain or exercise
any of the rights under this subsection.
(e) Except as otherwise agreed, an obligor under a transferable record has the same rights and defenses as an equivalent obligor under
equivalent records or writings under this title.
(f) If requested by a person against which enforcement is sought, the person seeking to enforce the transferable record shall provide
reasonable proof that the person is in control of the transferable record. Proof may include access to the authoritative copy of the
transferable record and related business records sufficient to review the terms of the transferable record and to establish the identity of
the person having control of the transferable record.
(72 Del. Laws, c. 457, § 1.)
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§ 12A-117. Choice of forum.
(a) The parties to an electronic contract may choose an exclusive judicial forum; provided, however, that the provisions of §§ 1-301
and 2708 of this title shall apply to such choice; provided further that if the contract is a consumer contract the choice is not enforceable
if such choice is unreasonable and unjust.
(b) A judicial forum specified in an agreement is not exclusive unless the agreement expressly so provides.
(72 Del. Laws, c. 457, § 1.)
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Subtitle II
Other Laws Relating to Commerce and Trade
Chapter 12B
Computer Security Breaches
§ 12B-100. Protection of personal information.
Any person who conducts business in this State and owns, licenses, or maintains personal information shall implement and maintain
reasonable procedures and practices to prevent the unauthorized acquisition, use, modification, disclosure, or destruction of personal
information collected or maintained in the regular course of business.
(81 Del. Laws, c. 129, § 1.)
§ 12B-101. Definitions.
For purposes of this chapter:
(1) “Breach of security” means as follows:
a. The unauthorized acquisition of computerized data that compromises the security, confidentiality, or integrity of personal
information. Good faith acquisition of personal information by an employee or agent of any person for the purposes of such person
is not a breach of security, provided that the personal information is not used for an unauthorized purpose or subject to further
unauthorized disclosure.
b. The unauthorized acquisition of computerized data that compromises the security, confidentiality, or integrity of personal
information is not a breach of security to the extent that personal information contained therein is encrypted, unless such unauthorized
acquisition includes, or is reasonably believed to include, the encryption key and the person that owns or licenses the encrypted
information has a reasonable belief that the encryption key could render that personal information readable or useable.
(2) “Determination of the breach of security” means the point in time at which a person who owns, licenses, or maintains computerized
data has sufficient evidence to conclude that a breach of security of such computerized data has taken place.
(3) “Encrypted” means personal information that is rendered unusable, unreadable, or indecipherable through a security technology
or methodology generally accepted in the field of information security.
(4) “Encryption key” means the confidential key or process designed to render the encrypted personal information useable, readable,
and decipherable.
(5) “Notice” means any of the following:
a. Written notice.
b. Telephonic notice.
c. Electronic notice, if the notice provided is consistent with the provisions regarding electronic records and signatures set forth
in § 7001 of Title 15 of the United States Code or if the person’s primary means of communication with the resident is by electronic
means.
d. Substitute notice, if the person required to provide notice under this chapter demonstrates that the cost of providing notice will
exceed $75,000, or that the affected number of Delaware residents to be notified exceeds 100,000 residents, or that the person does
not have sufficient contact information to provide notice. Substitute notice consists of all of the following:
1. Electronic notice if the person has email addresses for the members of the affected class of Delaware residents.
2. Conspicuous posting of the notice on a website page of the person if the person maintains 1 or more website pages.
3. Notice to major statewide media, including newspapers, radio, and television and publication on the major social media
platforms of the person providing notice.
(6) “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.
(7) a. “Personal information” means a Delaware resident’s first name or first initial and last name in combination with any 1 or more
of the following data elements that relate to that individual:
1. Social Security number.
2. Driver’s license number or state or federal identification card number.
3. Account number, credit card number, or debit card number, in combination with any required security code, access code, or
password that would permit access to a resident’s financial account.
4. Passport number.
5. A username or email address, in combination with a password or security question and answer that would permit access to
an online account.
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6. Medical history, medical treatment by a health-care professional, diagnosis of mental or physical condition by a health care
professional, or deoxyribonucleic acid profile.
7. Health insurance policy number, subscriber identification number, or any other unique identifier used by a health insurer
to identify the person..
8. Unique biometric data generated from measurements or analysis of human body characteristics for authentication purposes.
9. An individual taxpayer identification number.
b. Personal information’' does not include publicly available information that is lawfully made available to the general public from
federal, state, or local government records or widely-distributed media.
(75 Del. Laws, c. 61, § 1; 81 Del. Laws, c. 129, § 1; 81 Del. Laws, c. 425, § 1.)
§ 12B-102. Disclosure of breach of security; notice.
(a) Any person who conducts business in this State and who owns or licenses computerized data that includes personal information
shall provide notice of any breach of security following determination of the breach of security to any resident of this State whose personal
information was breached or is reasonably believed to have been breached, unless, after an appropriate investigation, the person reasonably
determines that the breach of security is unlikely to result in harm to the individuals whose personal information has been breached.
(b) A person that maintains computerized data that includes personal information that the person does not own or license shall give
notice to and cooperate with the owner or licensee of the information of any breach of security immediately following determination of
the breach of security. For purposes of this subsection, “cooperation” includes sharing with the owner or licensee information relevant
to the breach.
(c) Notice required by subsection (a) of this section must be made without unreasonable delay but not later than 60 days after
determination of the breach of security, except in the following situations:
(1) A shorter time is required under federal law.
(2) A law-enforcement agency determines that the notice will impede a criminal investigation and such law-enforcement agency has
made a request of the person that the notice be delayed. Any such delayed notice must be made after such law-enforcement agency
determines that notice will not compromise the criminal investigation and so notifies the person of such determination.
(3) When a person otherwise required by subsection (a) of this section to provide notice, could not, through reasonable diligence,
identify within 60 days that the personal information of certain residents of this State was included in a breach of security, such person
must provide the notice required by subsection (a) of this section to such residents as soon as practicable after the determination that the
breach of security included the personal information of such residents, unless such person provides or has provided subst