2010 Pennsylvania Code
Title 13 - COMMERCIAL CODE
Chapter 12 - General Definitions and Principles of Interpretation
Interpretation -

                                CHAPTER 12
                    GENERAL DEFINITIONS AND PRINCIPLES
                            OF INTERPRETATION

     Sec.
     1201.  General definitions.
     1202.  Notice; knowledge.
     1203.  Lease distinguished from security interest.
     1204.  Value.
     1205.  Reasonable time; seasonableness.
     1206.  Presumptions.

        Enactment.  Chapter 12 was added April 16, 2008, P.L.57,
     No.13, effective in 60 days.
        Prior Provisions.  Former Chapter 12, which related to the
     same subject matter, was added November 1, 1979, P.L.255, No.86,
     and repealed April 16, 2008, P.L.57, No.13, effective in 60
     days.
     § 1201.  General definitions.
        (a)  Definition provisions.--Unless the context otherwise
     requires, words or phrases defined in this section, or in the
     additional definitions contained in other divisions of this
     title that apply to particular divisions or chapters of this
     title, have the meanings stated.
        (b)  Definitions.--Subject to additional definitions
     contained in subsequent provisions of this title which are
     applicable to specific provisions of this title, the following
     words and phrases when used in this title shall have, unless the
     context clearly indicates otherwise, the meanings given to them
     in this subsection:
            (1)  "Action."  In the sense of a judicial proceeding,
        the term includes recoupment, counterclaim, set-off, suit in
        equity and any other proceeding in which rights are
        determined.
            (2)  "Aggrieved party."  A party entitled to pursue a
        remedy.
            (3)  "Agreement."  As distinguished from "contract" under
        paragraph (12), the term 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 1303
        (relating to course of performance, course of dealing and
        usage of trade).
            (4)  "Bank."  A person engaged in the business of
        banking. The term includes a savings bank, savings and loan
        association, credit union and trust company.
            (5)  "Bearer."  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."  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."  The term includes a separately
        incorporated foreign branch of a bank.
            (8)  "Burden of establishing."  As to a fact, 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."  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.
                (i)  A person buys goods in the ordinary course of
            business 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.
                (ii)  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.
                (iii)  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.
                (iv)  Only a buyer that takes possession of the goods
            or has a right to recover the goods from the seller under
            Division 2 (relating to sales) may be a buyer in ordinary
            course of business.
        The term 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:
                (i)  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.
                (ii)  Language in the body of a record or display in
            larger type than the surrounding text, 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."  An individual who enters into a
        transaction primarily for personal, family or household
        purposes.
            (12)  "Contract."  As distinguished from "agreement" in
        paragraph (3), the total legal obligation that results from
        the parties' agreement as determined by this title as
        supplemented by any other applicable laws.
            (13)  "Creditor."  The term includes a general creditor;
        a secured creditor; a lien creditor; a 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."  A record that:
                (i)  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; or
                (ii)  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.
            (16.1)  "Electronic document of title."  A document of
        title evidenced by a record consisting of information stored
        in an electronic medium.
            (17)  "Fault."  A default, breach or wrongful act or
        omission.
            (18)  "Fungible goods."  As follows:
                (i)  goods of which any unit, by nature or usage of
            trade, is the equivalent of any other like unit; or
                (ii)  goods that by agreement are treated as
            equivalent.
            (19)  "Genuine."  Free of forgery or counterfeiting.
            (20)  "Good faith."  Except as otherwise provided in
        Division 5 (relating to letters of credit), honesty in fact
        and the observance of reasonable commercial standards of fair
        dealing.
            (21)  "Holder."  As follows:
                (i)  the person in possession of a negotiable
            instrument that is payable either to the bearer or to an
            identified person that is the person in possession;
                (ii)  the person in possession of a negotiable
            tangible document of title if the goods are deliverable
            either to the bearer or to the order of the person in
            possession; or
                (iii)  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."  As follows:
                (i)  having generally ceased to pay debts in the
            ordinary course of business other than as a result of
            bona fide dispute;
                (ii)  being unable to pay debts as they become due;
            or
                (iii)  being insolvent within the meaning of Federal
            bankruptcy law.
            (24)  "Money."  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."  A person other than an individual.
            (26)  "Party."  As distinguished from "third party," a
        person that has engaged in a transaction or made an agreement
        subject to this title.
            (27)  "Person."  Any individual; corporation; business
        trust; estate; trust; partnership; limited liability company;
        association; joint venture; government; governmental
        subdivision, agency or instrumentality, public corporation;
        or other legal or commercial entity.
            (28)  "Present value."  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:
                (i)  an interest rate specified by the parties if
            that rate is not manifestly unreasonable at the time the
            transaction is entered into; or
                (ii)  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."  Taking by sale, lease, discount,
        negotiation, mortgage, pledge, lien, security interest, issue
        or reissue, gift or other voluntary transaction creating an
        interest in property.
            (30)  "Purchaser."  A person that takes by purchase.
            (31)  "Record."  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."  Any remedial right to which an aggrieved
        party is entitled with or without resort to a tribunal.
            (33)  "Representative."  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."  An interest in personal
        property or fixtures which secures payment or performance of
        an obligation.
                (i)  The term 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 Division 9 (relating to secured transactions).
                (ii)  The term does not include the special property
            interest of a buyer of goods on identification of those
            goods to a contract for sale under section 2401 (relating
            to passing of title; reservation for security; limited
            application of section), but a buyer may also acquire a
            "security interest" by complying with Division 9
            (relating to secured transactions).
                (iii)  Except as otherwise provided in section 2505
            (relating to shipment by seller under reservation), the
            right of a seller or lessor of goods under Division 2
            (relating to sales) or 2A (relating to leases) 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 Division 9. The
            retention or reservation of title by a seller of goods
            notwithstanding shipment or delivery to the buyer under
            section 2401 is limited in effect to a reservation of a
            "security interest."
                (iv)  Whether a transaction in the form of a lease
            creates a "security interest" is determined pursuant to
            section 1203 (relating to lease distinguished from
            security interest).
            (36)  "Send."  In connection with a writing, record or
        notice:
                (i)  to deposit in the mail or deliver for
            transmission by any other usual means of communication:
                    (A)  with postage or cost of transmission
                provided for;
                    (B)  properly addressed; and
                    (C)  in the case of an instrument:
                        (I)  to an address specified thereon or
                    otherwise agreed upon; or
                        (II)  if no address is specified or agreed
                    upon, to any address reasonable under the
                    circumstances; or
                (ii)  in any other way to cause to be received any
            record or notice within the time it would have arrived if
            properly sent.
            (37)  "Signed."  Includes using any symbol executed or
        adopted with present intention to adopt or accept a writing.
            (38)  "State."  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.
            (39.1)  "Tangible document of title."  A document of
        title evidenced by a record consisting of information that is
        inscribed on a tangible medium.
            (40)  "Term."  A portion of an agreement that relates to
        a particular matter.
            (41)  "Unauthorized signature."  A signature made without
        actual, implied or apparent authority. The term includes a
        forgery.
            (42)  "Warehouse receipt."  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.
            (44)  "Written."  Includes printing, typewriting or any
        other intentional reduction to tangible form.

        Cross References.  Section 1201 is referred to in sections
     3103, 4A105, 8103 of this title; section 6902 of Title 42
     (Judiciary and Judicial Procedure); section 7315 of Title 51
     (Military Affairs).
     § 1202.  Notice; knowledge.
        (a)  Notice.--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.--"Knowledge" means actual knowledge. "Knows"
     has a corresponding meaning.
        (c)  Reason to know distinguished.--"Discover," "learn" or
     words of similar import refer to knowledge rather than to reason
     to know.
        (d)  Notify.--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)  Be notified.--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:
                (i)  the place of business through which the contract
            was made; or
                (ii)  another location held out by that person as the
            place for receipt of such communications.
        (f)  Communication to organizations.--Notice, knowledge or
     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.
     § 1203.  Lease distinguished from security interest.
        (a)  Factual determination.--Whether a transaction in the
     form of a lease creates a lease or security interest is
     determined by the facts of each case.
        (b)  Sufficient attributes for security interest.--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)  Insufficient attributes for security interest.--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
            (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)  Nominal consideration.--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)  Remaining economic life and reasonable predictability.--
     The "remaining economic life of the goods" and "reasonably
     predictable" fair market rent, fair market value or cost of
     performing under the lease agreement shall be determined with
     reference to the facts and circumstances at the time the
     transaction is entered into.

        Cross References.  Section 1203 is referred to in section
     1201 of this title.
     § 1204.  Value.
        Except as otherwise provided in Divisions 3 (relating to
     negotiable instruments), 4 (relating to bank deposits and
     collections) and 5 (relating to letters of credit), 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.
     § 1205.  Reasonable time; seasonableness.
        (a)  Reasonable time.--Whether a time for taking an action
     required by this title is reasonable depends on the nature,
     purpose and circumstances of the action.
        (b)  Seasonableness.--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.

        Cross References.  Section 1205 is referred to in section
     4A204 of this title.
     § 1206.  Presumptions.
        Whenever this title 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.

        Cross References.  Section 1206 is referred to in section
     2201 of this title.