SENATE, No. 2028
STATE OF NEW JERSEY
INTRODUCED MAY 8, 1997
By Senator INVERSO
An Act concerning commercial transactions, replacing chapter 5 of Title 12A of the New Jersey Statutes and revising various parts of the statutory law.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. Chapter 5 of Title 12A of the New Jersey Statutes (N.J.S.12A:5-101 through 12A:5-117, including any amendments or supplements thereto) is repealed and replaced as follows:
CHAPTER 5. LETTERS OF CREDIT
SHORT TITLE AND GENERAL MATTERS
12A:5-101. Short Title
This chapter may be cited as "Uniform Commercial Code--Letters of Credit."
a. As used in this chapter:
(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 (a) 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 subsection e. of 12A:5-108; and (b) 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:
(a) upon payment;
(b) if the letter of credit provides for acceptance, upon acceptance of a draft and, at maturity, its payment; or
(c) 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 12A: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 (a) designates or authorizes to pay, accept, negotiate, or otherwise give value under a letter of credit and (b) 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 chapters applying to this chapter and the sections in which they appear are:
"Value" 12A:3-303, 12A:4-211
c. N.J.S.12A:1-101 et seq. contains certain additional general definitions and principles of construction and interpretation applicable throughout this chapter.
a. This chapter 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 chapter 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 chapter.
c. With the exception of this subsection and subsections a. and d. of this section, paragraphs (9) and (10) of subsection a. of 12A:5-102, subsection d. of 12A:5-106 and subsection d. of 12A:5-114, and except to the extent prohibited in subsection (3) of 12A:1-102 and subsection d. of 12A:5-117, the effect of this chapter 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 chapter.
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.
12A: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 (a) by a signature; or (b) in accordance with the agreement of the parties or the standard practice referred to in subsection e. of 12A:5-108.
12A:5-105. Consideration. Consideration is not required to issue, amend, transfer, or cancel a letter of credit, advice, or confirmation.
12A: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.
12A: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. of this section. 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.
12A:5-108. Issuer's Rights and Obligations.
a. Except as otherwise provided in 12A:5-109, an issuer shall honor a presentation that, as determined by the standard practice referred to in subsection e. of this section, appears on its face strictly to comply with the terms and conditions of the letter of credit. Except as otherwise provided in 12A: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:
(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. of this section, 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. of this section 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 subsection a. of 12A:5-109 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 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. of this section.
g. If an undertaking constituting a letter of credit under paragraph (10) of subsection a. of 12A:5-102 contains nondocumentary conditions, an issuer shall disregard the nondocumentary 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 chapter:
(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 12A:3-414 and 12A:3-415;
(4) except as otherwise provided in 12A:5-110 and 12A: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 unless the issuer honored a presentation in which a required signature of a beneficiary was forged.
12A: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 (a) a nominated person who has given value in good faith and without notice of forgery or material fraud, (b) a confirmer who has honored its confirmation in good faith, (c) 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 (d) 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 paragraph (1) of subsection a. of this section.
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 subsection a. of 12A:5-109; and
(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. of this section are in addition to warranties arising under 12A:3-101 et seq., 12A:4-101 et seq., 12A:7-101 et seq. and 12A:8-101 et seq. because of the presentation or transfer of documents covered by any of those chapters.
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 chapter or an issuer breaches an obligation not covered in subsection a. or b. of this section, 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. of this section.
d. An issuer, nominated person, or adviser who is found liable under subsection a., b., or c. of this section 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 may be awarded to the prevailing party in an action in which a remedy is sought under this chapter.
f. Damages that would otherwise be payable by a party for breach of an obligation under this chapter 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.
12A:5-112. Transfer of Letter of Credit.
a. Except as otherwise provided in 12A: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 subsection e. of 12A:5-108 or is otherwise reasonable under the circumstances.
12A: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. of this section, 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 subsection e. of 12A:5-108 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. of this section has the consequences specified in subsection i. of 12A:5-108 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 12A:5-109.
e. An issuer whose rights of reimbursement are not covered by subsection d. of this section or substantially similar law and any confirmer or nominated person may decline to recognize a presentation under subsection b. of this section.
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.
12A: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 12A:9-101 et seq. 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 12A:9-101 et seq. or other law.
12A:5-115. Statute of Limitations. An action to enforce a right or obligation arising under this chapter 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.
12A: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 12A: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. of this section 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 chapter would govern the liability of an issuer, nominated person, or adviser under subsection a. or b. of this section, (ii) the relevant undertaking incorporates rules of custom or practice, and (iii) there is conflict between this chapter and those rules as applied to that undertaking, those rules govern except to the extent of any conflict with the nonvariable provisions specified in subsection c. of 12A:5-103.
d. If there is conflict between this chapter, 12A:5-101 et seq., and 12A:3-101 et seq., 12A:4-101 et seq., 12A:4A-101 et seq., or 12A:9-101 et seq., this chapter governs.
e. The forum for settling disputes arising out of an undertaking within this chapter may be chosen in the manner and with the binding effect that governing law may be chosen in accordance with subsection a. of this section.
12A: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.
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. of this section.
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 the 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. of this section do not arise until the issuer honors the letter of credit or otherwise pays and the rights in subsection c. of this section 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.
2. N.J.S.12A:1-105 is amended to read as follows:
12A:1-105. Territorial application of the act; parties' power to choose applicable law.
(1) Except as provided hereafter 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. Failing such agreement this act applies to transactions bearing an appropriate relation to this State.
(2) Where one of the following provisions of this act specifies the applicable law, that provision governs and a contrary agreement is effective only to the extent permitted by the law (including the conflict of laws rules) so specified:
Rights of creditors against sold goods. 12A:2-402.
Applicability of the Chapter on Leases. 12A:2A-105 and 12A:2A-106.
Applicability of the Chapter on Bank Deposits and Collections. 12A:4-102.
Governing law in the Chapter on Funds Transfers. 12A:4A-507.
Letters of Credit. 12A:5-116.
Applicability of the Chapter on Investment Securities. 12A:8-106.
Perfection provisions of the Chapter on Secured Transactions. 12A:9-103.
(cf: P.L1994, c.114, s.3)
3. N.J.S.12A:2-512 is amended to read as follows:
12A:2-512. (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 the provisions of [this Act (12A:5-114] 12A: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 remedies.
4. N.J.S.12A:9-103 is amended to read as follows:
12A:9-103. Perfection of Security Interests in Multiple State Transactions.
(1) Documents, instruments , letters of credit, and ordinary goods.
(a) This subsection applies to documents [and] , instruments , rights to proceeds of written letters of credit, and [to] goods other than those covered by a certificate of title described in subsection (2), mobile goods described in subsection (3), and minerals described in subsection (5).
(b) Except as otherwise provided in this subsection, perfection and the effect of perfection or nonperfection of a security interest in collateral are governed by the law of the jurisdiction where the collateral is when the last event occurs on which is based the assertion that the security interest is perfected or unperfected.
(c) If the parties to a transaction creating a purchase money security interest in goods in one jurisdiction understand at the time that the security interest attaches that the goods will be kept in another jurisdiction, then the law of the other jurisdiction governs the perfection and the effect of perfection or nonperfection of the security interest from the time it attaches until 30 days after the debtor receives possession of the goods and thereafter if the goods are taken to the other jurisdiction before the end of the 30-day period.
(d) When collateral is brought into and kept in this State while subject to a security interest perfected under the law of the jurisdiction from which the collateral was removed, the security interest remains perfected, but if action is required by subchapter 3 of this chapter to perfect the security interest,
(i) if the action is not taken before the expiration of the period of perfection in the other jurisdiction or the end of four months after the collateral is brought into this State, whichever period first expires, the security interest becomes unperfected at the end of that period and is thereafter deemed to have been unperfected as against a person who became a purchaser after removal;
(ii) if the action is taken before the expiration of the period specified in subparagraph (i), the security interest continues perfected thereafter;
(iii) for the purpose of priority over a buyer of consumer goods (subsection (2) of 12A:9-307), the period of the effectiveness of a filing in the jurisdiction from which the collateral is removed is governed by the rules with respect to perfection in subparagraphs (i) and (ii).
(2) Certificate of title.
(a) This subsection applies to goods covered by a certificate of title issued under a statute of this State or of another jurisdiction under the law of which indication of a security interest on the certificate is required as a condition of perfection.
(b) Except as otherwise provided in this subsection, perfection and the effect of perfection or nonperfection of the security interest are governed by the law (including the conflict of laws rules) of the jurisdiction issuing the certificate until four months after the goods are removed from that jurisdiction and thereafter until the goods are registered in another jurisdiction, but in any event not beyond surrender of the certificate. After the expiration of that period, the goods are not covered by the certificate of title within the meaning of this section.
(c) Except with respect to the rights of a buyer described in the next paragraph, a security interest, perfected in another jurisdiction otherwise than by notation on a certificate of title, in goods brought into this State and thereafter covered by a certificate of title issued by this State is subject to the rules stated in paragraph (d) of subsection (1).
(d) If goods are brought into this State while a security interest therein is perfected in any manner under the law of the jurisdiction from which the goods are removed and a certificate of title is issued by this State and the certificate does not show that the goods are subject to the security interest or that they may be subject to security interests not shown on the certificate, the security interest is subordinate to the rights of a buyer of the goods who is not in the business of selling goods of that kind to the extent that he gives value and receives delivery of the goods after issuance of the certificate and without the knowledge of the security interest.
(3) Accounts, general intangibles and mobile goods.
(a) This subsection applies to accounts (other than an account described in subsection (5) on minerals) and general intangibles (other than uncertificated securities) and to goods which are mobile and which are of a type normally used in more than one jurisdiction, such as motor vehicles, trailers, rolling stock, airplanes, shipping containers, road building and construction machinery and commercial harvesting machinery and the like, if the goods are equipment or are inventory leased or held for lease by the debtor to others, and are not covered by a certificate of title described in subsection (2).
(b) The law (including the conflict of laws rules) of the jurisdiction in which the debtor is located governs the perfection and the effect of perfection or nonperfection of the security interest.
(c) If, however, the debtor is located in a jurisdiction which is not a part of the United States, and which does not provide for perfection of the security interest by filing or recording in that jurisdiction, the law of the jurisdiction in the United States in which the debtor has its major executive office in the United States governs the perfection and the effect of perfection or nonperfection of the security interest through filing. In the alternative, if the debtor is located in a jurisdiction which is not a part of the United States or Canada and the collateral is accounts or general intangibles for money due or to become due, the security interest may be perfected by notification to the account debtor. As used in this paragraph, "United States" includes its territories and possessions and the Commonwealth of Puerto Rico.
(d) A debtor shall be deemed located at his place of business if he has one, at his chief executive office if he has more than one place of business, otherwise at his residence. If, however, the debtor is a foreign air carrier under the Federal Aviation Act of 1958, as amended, it shall be deemed located at the designated office of the agent upon whom service of process may be made on behalf of the foreign air carrier.
(e) A security interest perfected under the law of the jurisdiction of the location of the debtor is perfected until the expiration of four months after a change of the debtor's location to another jurisdiction, or until perfection would have ceased by the law of the first jurisdiction, whichever period first expires. Unless perfected in the new jurisdiction before the end of that period, it becomes unperfected thereafter and is deemed to have been unperfected as against a person who became a purchaser after the change.
(4) Chattel paper.
The rules stated for goods in subsection (1) apply to a possessory security interest in chattel paper. The rules stated for accounts in subsection (3) apply to a nonpossessory security interest in chattel paper, but the security interest may not be perfected by notification to the account debtor.
Perfection and the effect of perfection or nonperfection of a security interest which is created by a debtor who has an interest in minerals or the like (including oil and gas) before extraction and which attaches thereto as extracted, or which attaches to an account resulting from the sale thereof at the wellhead or minehead are governed by the law (including the conflict of laws rules) of the jurisdiction wherein the wellhead or minehead is located.
(6) Uncertificated securities.
The law (including the conflict of laws rules) of the jurisdiction of organization of the issuer governs the perfection and the effect of perfection or nonperfection of a security interest in uncertificated
(cf: P.L.1989, c.348, s.48)
5. N.J.S.12A:9-104 is amended to read as follows:
12A:9-104. This chapter does not apply
(a) To a security interest subject to any statute of the United States such as the Ship Mortgage Act, 1920, to the extent that such statute governs the rights of parties to and third parties affected by transactions in particular types of property; or
(b) To a landlord's lien; or
(c) To a lien given by statute or other rule of law for services or materials except as provided in 12A:9-310 on priority of such liens; or
(d) To a transfer of a claim for wages, salary or other compensation of an employee; or
(e) To a transfer by a government or governmental subdivision or agency; or
(f) To a sale of accounts or chattel paper as part of a sale of the business out of which they arose, or an assignment of accounts or chattel paper which is for the purpose of collection only, or a transfer of a right to payment under a contract to an assignee who is also to do the performance under the contract or a transfer of a single account to an assignee in whole or partial satisfaction of a preexisting indebtedness; or
(g) To a transfer of an interest in or claim in or under any policy of insurance, except as provided with respect to proceeds (12A:9-306) and priorities in proceeds (12A:9-312); or
(h) To a right represented by a judgment (other than a judgment taken on a right to payment which was collateral); or
(i) To any right of set-off; or
(j) Except to the extent that provision is made for fixtures in 12A:9-313, to the creation or transfer of an interest in or lien on real estate, including a lease or rents thereunder; or
(k) To a transfer in whole or in part of any claim arising out of tort; or
(l) To a transfer of an interest in any deposit account (subsection (1) of 12A:9-105), except as provided with respect to proceeds (12A:9-306) and priorities in proceeds (12A:9-312); or
(m) To a chattel mortgage of the character described in [section] R.S. 46:28-14 [of the Revised Statutes] ; or
(n) to a transfer of an interest in a letter of credit other than the rights to proceeds of a written letter of credit.
(cf: P.L.1981, c.138, s.8)
6. N.J.S.12A:9-105 is amended to read as follows:
12A:9-105. Definitions and Index of Definitions.
(1) In this chapter unless the context otherwise requires:
(a) "Account debtor" means the person who is obligated on an account, chattel paper or general intangible;
(b) "Chattel paper" means a writing or writings which evidence both a monetary obligation and a security interest in or a lease of specific goods, but a charter or other contract involving the use or hire of a vessel is not chattel paper. When a transaction is evidenced both by such a security agreement or a lease and by an instrument or a series of instruments, the group of writings taken together constitutes chattel paper;
(c) "Collateral" means the property subject to a security interest, and includes accounts and chattel paper which have been sold;
(d) "Debtor" means the person who owes payment or other performance of the obligation secured, whether or not he owns or has rights in the collateral, and includes the seller of accounts or chattel paper. Where the debtor and the owner of the collateral are not the same person, the term "debtor" means the owner of the collateral in any provision of the chapter dealing with the collateral, the obligor in any provision dealing with the obligation, and may include both where the context so requires;
(e) "Deposit account" means a demand, time, savings, passbook or like account maintained with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a certificate of deposit;
(f) "Document" means document of title as defined in the general definitions of chapter 1 (12A:1-201) , and a receipt of the kind described in subsection (2) of 12A:7-201;
(g) "Encumbrance" includes real estate mortgages and other liens on real estate and all other rights in real estate that are not ownership interests;
(h) "Goods" includes all things which are movable at the time the security interest attaches or which are fixtures (12A:9-313), but does not include money, documents, instruments, accounts, chattel paper, general intangibles, or minerals or the like (including oil and gas) before extraction. "Goods" also includes standing timber which is to be cut and removed under a conveyance or contract for sale, the unborn young of animals, and growing crops;
(i) "Instrument" means a negotiable instrument (defined in 12A:3-104), or a certificated security (defined in 12A:8-102) or any other writing which evidences a right to the payment of money and is not itself a security agreement or lease and is of a type which is in ordinary course of business transferred by delivery with any necessary indorsement or assignment;
(j) "Mortgage" means a consensual interest created by a real estate mortgage, a trust deed on real estate, or the like;
(k) An advance is made "pursuant to commitment" if the secured party has bound himself to make it, whether or not a subsequent event of default or other event not within his control has relieved or may relieve him from his obligation;
(l) "Security agreement" means an agreement which creates or provides for a security interest;
(m) "Secured party" means a lender, seller or other person in whose favor there is a security interest, including a person to whom accounts or chattel paper have been sold. When the holders of obligations issued under an indenture of trust, equipment trust agreement or the like are represented by a trustee or other person, the representative is the secured party.
(2) Other definitions applying to this chapter and the sections in which they appear are:
"Construction mortgage." 12A:9-313 (1).
"Consumer goods." 12A:9-109 (1).
"Equipment." 12A:9-109 (2).
"Farm products." 12A:9-109 (3).
"Fixture filing." 12A:9-313.
"General intangibles." 12A:9-106.
"Inventory." 12A:9-109 (4).
"Lien creditor." 12A:9-301 (3).
"Proceeds." 12A:9-306 (1).
"Purchase money security interest." 12A:9-107.
"United States." 12A:9-103 (3).
(3) The following definitions in other chapters apply to this chapter:
"Contract for sale." 12A:2-106.
"Holder in due course." 12A:3-302.
"Letter of Credit." 12A:5-102.
"Proceeds of a letter of credit." 12A:5-114.
(4) In addition chapter 1 contains general definitions and principles of construction and interpretation applicable throughout this chapter.
(cf: P.L.1989, c.348, s.49)
7. N.J.S.12A:9-106 is amended to read as follows"
12A:9-106. Definitions: "account"; "general intangibles"
"Account" means any right to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper, whether or not it has been earned by performance. All rights to payment earned or unearned under a charter or other contract involving the use or hire of a vessel and all rights incident to the charter or contract are accounts. "General intangibles" means any personal property (including things in action) other than goods, accounts, chattel paper, documents, instruments, rights to proceeds of written letters of credit, and money.
(cf: P.L.1981, c.138, s.10)
8. N.J.S.12A:9-304 is amended to read as follows:
12A:9-304. Perfection of Security Interest In Instruments, Documents, Proceeds of a Written Letter of Credit, and Goods Covered by Documents; Perfection by Permissive Filing; Temporary Perfection Without Filing or Transfer of Possession.
(1) A security interest in chattel paper or negotiable documents may be perfected by filing. A security interest in the rights to proceeds of a written letter of credit can be perfected only by the secured party's taking possession of the letter of credit. A security interest in money or instruments (other than certificated securities or instruments which constitute part of chattel paper) can be perfected only by the secured party's taking possession, except as provided in subsections (4) and (5) of this section and subsections (2) and (3) of 12A:9-306 on proceeds. (2) During the period that goods are in the possession of the issuer of a negotiable document therefor, a security interest in the goods is perfected by perfecting a security interest in the document, and any security interest in the goods otherwise perfected during such period is subject thereto.
(3) A security interest in goods in the possession of a bailee other than one who has issued a negotiable document therefor is perfected by issuance of a document in the name of the secured party or by the bailee's receipt of notification of the secured party's interest or by filing as to the goods.
(4) A security interest in instruments (other than certificated securities) or negotiable documents is perfected without filing or the taking of possession for a period of 21 days from the time it attaches to the extent that it arises for new value given under a written security agreement.
(5) A security interest remains perfected for a period of 21 days without filing where a secured party having a perfected security interest in an instrument (other than a certificated security), a negotiable document or goods in possession of a bailee other than one who has issued a negotiable document therefor:
(a) Makes available to the debtor the goods or documents representing the goods for the purpose of ultimate sale or exchange or for the purpose of loading, unloading, storing, shipping, transshipping, manufacturing, processing or otherwise dealing with them in a manner preliminary to their sale or exchange, but priority between conflicting security interests in the goods is subject to subsection (3) of 12A:9-312; or
(b) Delivers the instrument to the debtor for the purpose of ultimate sale or exchange or of presentation, collection, renewal, or registration of transfer.
(6) After the 21-day period in subsections (4) and (5) perfection depends upon compliance with applicable provisions of this chapter.
(cf: P.L.1989, c.348, s.52)
9. N.J.S.12A:9-305 is amended to read as follows:
12A:9-305. When Possession by Secured Party Perfects Security Interest Without Filing.
A security interest in [letters of credit and advices of credit (subsection (2) (a) of 12A:5-116),] goods, instruments (other than certificated securities), money, negotiable documents or chattel paper may be perfected by the secured party's taking possession of the collateral. A security interest in the right to proceeds of a written letter of credit may be perfected by the secured party's taking possession of the letter of credit. If such collateral other than goods covered by a negotiable document is held by a bailee, the secured party is deemed to have possession from the time the bailee receives notification of the secured party's interest. A security interest is perfected by possession from the time possession is taken without relation back and continues only so long as possession is retained, unless otherwise specified in this chapter. The security interest may be otherwise perfected as provided in this chapter before or after the period of possession by the secured party.
(cf: P.L.1989, c.348, s.53)
10. Section 25 of P.L.1948, c.67 (C.17:9A-25) is amended to read as follows:
25. Additional powers of banks.
In addition to the powers specified in section 24, every bank shall, subject to the provisions of this act, have the following powers, whether or not such powers are specifically set forth in its certificate of incorporation:
(1) To discount, buy, invest in, hold, assign, transfer, sell, and negotiate promissory notes, drafts, bills of exchange, mortgages, trade acceptances, bankers' acceptances, bonds, debentures, bonds or notes secured by mortgages, installment obligations, balances due on conditional sales, and other evidences of debt for its own account, or for the account of customers;
(2) To accept for payment at future dates drafts drawn upon it by its customers;
(3) To issue letters of credit [authorizing holders thereof to draw drafts upon it or upon its correspondents at sight or on time;] to guarantee the payment by its customers of amounts due or to become due upon the purchase by such customers of real or personal property;
(4) To receive interest and noninterest bearing demand and time deposits, to be repaid on such terms as may be agreed upon between the depositors and the bank, and to furnish security for such deposits when required by the laws of this State or of the United States, or by rules or orders of any court of this State or of the United States or by the regulations of an officer or agency of this State or of the United States, made pursuant to such law; provided that no bank shall be required to give security for deposits made by this State, or any political subdivision thereof, or any other body politic existing under the laws of this State, to the extent that such deposits are insured under any federal legislation providing for the insurance of bank deposits;
(5) To maintain savings departments for the receipt of interest and noninterest bearing deposits, to be repaid on such terms as may be agreed upon between the depositors and the bank, and to commingle such deposits with deposits otherwise received;
(6) During hours other than the bank's usual hours for receipt of deposits, to provide the equipment for receiving, and to receive, containers purporting to contain moneys or instruments for the payment of money;
(7) To make loans, secured or unsecured, including loans to its stockholders;
(8) To extend credit by honoring overdrafts upon deposit accounts, but no credit shall be so extended except pursuant to written agreement made in advance;
(9) To buy and sell gold and silver bullion, foreign coin, and exchange;
(10) To purchase and sell debt and equity securities of other corporations, without recourse, solely upon order and for the account of customers. This paragraph shall not limit the power of a bank to take securities of other corporations as collateral security for loans, discounts, or other extensions of credit, or to acquire those securities when their acquisition is necessary to prevent or minimize loss upon debts previously contracted in good faith. Equity securities acquired pursuant to this paragraph shall be sold within five years after their acquisition, except that the commissioner may, by order, extend the time within which sales of equity securities described in such order shall be made; but this paragraph shall not invalidate the holding of any equity securities lawfully acquired on or before the effective date of this act. This paragraph shall not apply to any case in which, pursuant to any other provision of this act, or pursuant to any other act, a bank is expressly authorized to subscribe for, purchase or otherwise acquire or hold securities;
(11) To receive any tangible personal property for safekeeping and storage on the terms provided by chapter 7 of Title 12A of the New Jersey Statutes, and to keep, maintain, and rent out for hire, space for the storage and safekeeping of personal property of such kind and description, or represented by the depositor thereof to be of such kind and description, as the commissioner may by regulation from time to time prescribe; but nothing herein contained shall limit the power of a bank to let space for the storage and safekeeping of personal property to which the bank has security title or in which it has a lien interest;
(12) To avail itself of the provisions of any federal legislation providing for the extension of any lawful banking activity in the making of loans or the extension of credit to individuals, or for the financing of business enterprises, or in such other banking activity as may be specified in such legislation and made available for participation by banks; except that the power by this paragraph conferred shall not be exercised unless the commissioner shall make a general order authorizing such participation upon such terms and conditions as may in such order be prescribed;
(13) To act as the fiscal agent of the United States, and of any corporation, and of any State, county, municipality, board, commission or other body politic, and to perform all duties as such fiscal agent as may lawfully be required of it;
(14) To assist customers or act for customers in the preparation, handling and disbursement of payrolls and payroll deductions and in the preparation, maintenance and furnishing of records and statistical information in connection therewith.
(cf: P.L.1985, c.528, s.3)
11. Section 213.1 of P.L.1948, c.67 (C.17:9A-213.1) is amended to read as follows:
213.1. Except as in this act or otherwise by law provided, and except for letters of credit issued purusant to N.J.S.12A:5-101 et seq., no bank or savings bank shall have power to guarantee the obligations of others; or to insure or indemnify against the acts, omissions, undertakings, liabilities or losses of others.
(cf: P.L.1948, c.67, s.213.1)
12. This act shall take effect immediately.
This bill repeals existing Uniform Commercial Code Chapter 5 Letters of Credit and replaces it with Uniform Commercial Code Revised Chapter 5. The revision is a product of the National Conference of Commissioners on Uniform State Laws and has been adopted in 14 states. The New Jersey Law Revision Commission has reviewed Revised Chapter 5 to determine its suitability for New Jersey, and has reported that it would improve our commercial law.
Revised Chapter 5 updates existing law to accomodate changes in technology in the banking industry. It also settles several ambiguities in current law and conforms domestic law as applied through this chapter of the U.C.C. to the international standards and practices governing letters of credit.
This bill contains two provisions which deviate from the Official Text of Revised Chapter 5 recommended by the New Jersey Law Revision Commission. First, subsection e. of 12A:5-111 makes the award of attorney's fees and expenses of litigation discretionary with the court rather than mandatory. This deviation reflects well-established New Jersey principles on allocation of legal costs. Each party bears its own attorney's fees and expenses of litigation. Second, subsection e. of 12A:5-108 clarifies that the court determines standard banking practices regarding letters of credit but does not decide disputed questions of fact when the case is tried to a jury. This deviation is not a change in meaning of the Official Text but corrects an ambiguity of language in that text.
Letters of credit are an important payment instrument for business firms both in domestic and international transactions. Revised Chapter 5 modernizes relevant New Jersey law and creates an efficient legal environment for the letter of credit industry.
Revises law on letters of credit.