CHAPTER 10
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CHAPTER 10
( SB 155 )
AN ACT relating to the Uniform Commercial Code.
Be it enacted by the General Assembly of the Commonwealth of Kentucky:
Section 1. KRS 355.1-201 is amended to read as follows:
(1) Unless the context otherwise requires, words or phrases defined in this section, or in the additional definitions
contained in other articles of this chapter[the Uniform Commercial Code] that apply to particular articles or
parts thereof, have the meanings stated.
(2) Subject to definitions contained in other articles of this chapter[the Uniform Commercial Code] that apply to
particular articles or parts thereof:
(a) "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;
(b) "Aggrieved party" means a party entitled to pursue a remedy;
(c) "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 KRS 355.1-303;
(d) "Bank" means a person engaged in the business of banking and includes a savings bank, savings and
loan association, credit union, and trust company;
(e) "Bearer" means a person in control of a negotiable electronic document of title or a person in possession
of a negotiable instrument, a negotiable tangible document of title, or certificated security that is
payable to bearer or indorsed in blank;
(f) 1. "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.
2. The term does not include a warehouse receipt;
(g) "Branch" includes a separately incorporated foreign branch of a bank;
(h) "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;
(i) 1. "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.
2. 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.
3. 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.
4. 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.
5. Only a buyer that takes possession of the goods or has a right to recover the goods from the seller
under Article 2 of this chapter may be a buyer in ordinary course of business.
6. "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;
(j) 1. "Conspicuous," with reference to a term, means so written, displayed, or presented that, based on
the totality of the circumstances, a reasonable person against which it is to operate ought to have
noticed it. ACTS OF THE GENERAL ASSEMBLY 2
2. Whether a term is "conspicuous" or not is a decision for the court[. Conspicuous terms include
the following:
1. 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
2. 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];
(k) "Consumer" means an individual who enters into a transaction primarily for personal, family, or
household purposes;
(l) "Contract," as distinguished from "agreement," means the total legal obligation that results from the
parties' agreement as determined by this chapter[the Uniform Commercial Code] as supplemented by
any other applicable laws;
(m) "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;
(n) "Defendant" includes a person in the position of defendant in a counterclaim, cross-claim, or third-party
claim;
(o) "Delivery[,]":
1. With respect to an electronic document of title, means voluntary transfer of control; and
2. With respect to an instrument, a tangible document of title, or an authoritative tangible copy of
a record evidencing chattel paper, means voluntary transfer of possession;
(p) 1. "Document of title" means a record that:
a.[1.] 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
b.[2.] 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.
2. The term includes a bill of lading, transport document, dock warrant, dock receipt, warehouse
receipt, and order for delivery of goods.
3. An electronic document of title is evidenced by a record consisting of information stored in an
electronic medium.
4. A tangible document of title is evidenced by a record consisting of information that is inscribed
on a tangible medium;
(q) "Electronic" means relating to technology having electrical, digital, magnetic, wireless, optical,
electromagnetic, or similar capabilities;
(r) "Fault" means a default, breach, or wrongful act or omission;
(s)[(r)] "Fungible goods" means:
1. Goods of which any unit, by nature or usage of trade, is the equivalent of any other like unit; or
2. Goods that by agreement are treated as equivalent;
(t)[(s)] "Genuine" means free of forgery or counterfeiting;
(u)[(t)] "Good faith," except as otherwise provided in Article 5 of this chapter, means honesty in fact and
the observance of reasonable commercial standards of fair dealing;
(v)[(u)] "Holder" means:
1. 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; CHAPTER 10
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2. 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
3. The[A] person in control, other than pursuant to subsection (7) of Section 38 of this Act, of a
negotiable electronic document of title;
(w)[(v)] "Insolvency proceeding" includes an assignment for the benefit of creditors or other proceeding
intended to liquidate or rehabilitate the estate of the person involved;
(x)[(w)] "Insolvent" means:
1. Having generally ceased to pay debts in the ordinary course of business other than as a result of
bona fide dispute;
2. Being unable to pay debts as they become due; or
3. Being insolvent within the meaning of federal bankruptcy law;
(y)[(x)] 1. "Money" means a medium of exchange that is currently authorized or adopted by a
domestic or foreign government.
2. The term includes a monetary unit of account established by an intergovernmental organization
or by agreement between two (2) or more countries.
3. The term does not include an electronic record that is a medium of exchange recorded and
transferable in a system that existed and operated for the medium of exchange before the
medium of exchange was authorized or adopted by the government;
(z)[(y)] "Organization" means a person other than an individual;
(aa)[(z)] "Party," as distinguished from "third party," means a person that has engaged in a transaction or
made an agreement subject to this chapter[the Uniform Commercial Code];
(ab)[(aa)] 1. "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.
2. The term includes a protected series, however denominated, of an entity if the protected series
is established under law other than this chapter that limits, or limits if conditions specified
under the law are satisfied, the ability of a creditor of the entity or of any other protected series
of the entity to satisfy a claim from assets of the protected series;
(ac)[(ab)] "Present value" means the amount as of a date certain of one (1) 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;
(ad)[(ac)] "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;
(ae)[(ad)] "Purchaser" means a person that takes by purchase;
(af)[(ae)] "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;
(ag)[(af)] "Remedy" means any remedial right to which an aggrieved party is entitled with or without
resort to a tribunal;
(ah)[(ag)] "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;
(ai)[(ah)] "Right" includes remedy;
(aj)[(ai)] 1. "Security interest" means an interest in personal property or fixtures which secures
payment or performance of an obligation. ACTS OF THE GENERAL ASSEMBLY 4
2. The term["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 of this chapter.
3. The term["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 KRS 355.2-401, but a buyer may also
acquire a "security interest" by complying with Article 9 of this chapter.
4. Except as otherwise provided in KRS 355.2-505, the right of a seller or lessor of goods under
Article 2 or 2A of this chapter 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
of this chapter.
5. The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to
the buyer under KRS 355.2-401 is limited in effect to a reservation of a "security interest."
6. Whether a transaction in the form of a lease creates a "security interest" is determined pursuant to
KRS 355.1-203;
(ak)[(aj)] "Send," in connection with a[ writing,] record[,] or notification,[notice] means:
1. To deposit in the mail,[ or] deliver for transmission, or transmit by any other usual means of
communication, with postage or cost of transmission provided for, addressed[ 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
2. To cause the record or notification to be received within the time it would have been received if
properly sent under subparagraph 1. of this paragraph[In any other way to cause to be received
any record or notice within the time it would have arrived if properly sent];
(al)[(ak)] 1. "Sign[Signed]" means, with present intent to authenticate or adopt a record:
a. Execute or adopt a tangible symbol; or
b. Attach to or logically associate with the record an electronic symbol, sound, or process.
2. "Signed," "signing," and "signature" have corresponding meanings[includes using any
symbol executed or adopted with present intention to adopt or accept a writing];
(am)[(al)] "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;
(an)[(am)] "Surety" includes a guarantor or other secondary obligor;
(ao)[(an)] "Term" means a portion of an agreement that relates to a particular matter;
(ap)[(ao)] 1. "Unauthorized signature" means a signature made without actual, implied, or apparent
authority.
2. The term includes a forgery;
(aq)[(ap)] "Warehouse receipt" means a document of title issued by a person engaged in the business of
storing goods for hire; and
(ar)[(aq)] 1. "Writing" includes printing, typewriting, or any other intentional reduction to tangible
form.
2. "Written" has a corresponding meaning.
Section 2. KRS 355.1-204 is amended to read as follows:
Except as otherwise provided in Articles 3, 4,[ and] 5, and 12 of this chapter, 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; CHAPTER 10
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(3) By accepting delivery under a preexisting contract for purchase; or
(4) In return for any consideration sufficient to support a simple contract.
Section 3. KRS 355.1-301 is amended to read as follows:
(1) This section applies to a transaction to the extent that it is governed by another article of this chapter[the
Uniform Commercial Code].
(2) 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 of either this state or such other state or
nation shall govern their rights and duties.
(3) In the absence of an agreement effective under subsection (2) of this section, the rights and obligations of the
parties are determined by the law that would be selected by application of this state's conflict-of-laws
principles.
(4) To the extent that this chapter[the Uniform Commercial Code] governs a transaction, if one (1) of the
following provisions of this chapter[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:
(a) KRS 355.2-402;
(b) KRS 355.2A-105 and 355.2A-106;
(c) KRS 355.4-102;
(d) KRS 355.4A-507;
(e) KRS 355.5-116;
(f) KRS 355.8-110;
(g) KRS 355.9-301 to 355.9-307; or
(h) Section 100 of this Act.
Section 4. KRS 355.1-306 is amended to read as follows:
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 a signed[an authenticated] record.
SECTION 5. KRS 355.2-102 IS REPEALED AND REENACTED TO READ AS FOLLOWS:
(1) Unless the context otherwise requires, and except as provided in subsection (3) of this section, this article
applies to transactions in goods and, in the case of a hybrid transaction, it applies to the extent provided in
subsection (2) of this section.
(2) In a hybrid transaction:
(a) If the sale-of-goods aspects do not predominate, only the provisions of this article which relate
primarily to the sale-of-goods aspects of the transaction apply, and the provisions that relate
primarily to the transaction as a whole do not apply; and
(b) If the sale-of-goods aspects predominate, this article applies to the transaction but does not preclude
application in appropriate circumstances of other law to aspects of the transaction which do not
relate to the sale of goods.
(3) This article does not:
(a) Apply to a transaction that, even though in the form of an unconditional contract to sell or present
sale, operates only to create a security interest; or
(b) Impair or repeal any statute regulating sales to consumers, farmers, or other specified classes of
buyers.
Section 6. KRS 355.2-106 is amended to read as follows:
(1) In this article, unless the context otherwise requires:
(a) "Contract" and "agreement" are limited to those relating to the present or future sale of goods;[.] ACTS OF THE GENERAL ASSEMBLY 6
(b) "Contract for sale" includes both a present sale of goods and a contract to sell goods at a future time;[.]
(c) A "sale" consists in the passing of title from the seller to the buyer for a price (KRS 355.2-401); and[.]
(d) 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) (a) "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.
(b) 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 canceling party also retains any remedy for breach of the whole
contract or any unperformed balance.
(5) "Hybrid transaction" means a single transaction involving a sale of goods and:
(a) The provision of services;
(b) A lease of other goods; or
(c) A sale, lease, or license of property other than goods.
Section 7. KRS 355.2-201 is amended to read as follows:
(1) Except as otherwise provided in this section, a contract for the sale of goods for the price of five hundred
dollars ($500) or more is not enforceable by way of action or defense unless there is a record[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 the party's[his] authorized agent or broker. A record[writing] is not
insufficient because it omits or incorrectly states a term agreed upon, but the contract is not enforceable under
this subsection[paragraph] beyond the quantity of goods shown in the record[such writing].
(2) Between merchants, if within a reasonable time a record[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) of this section against the[such] party unless[ written] notice in a record of
objection to its contents is given within ten (10) days after it is received.
(3) A contract which does not satisfy the requirements of subsection (1) of this section 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 that party's[his] pleading or[,] 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 (KRS 355.2-606).
Section 8. KRS 355.2-202 is amended to read as follows:
Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a
record[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:
(1) By course of performance, course of dealing, or usage of trade (KRS 355.1-303); and
(2) By evidence of consistent additional terms unless the court finds the record[writing] to have been intended
also as a complete and exclusive statement of the terms of the agreement.
Section 9. KRS 355.2-203 is amended to read as follows: CHAPTER 10
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The affixing of a seal to a record[writing] evidencing a contract for sale or an offer to buy or sell goods does not
constitute the record[writing] a sealed instrument and the law with respect to sealed instruments does not apply to
such a contract or offer.
Section 10. KRS 355.2-205 is amended to read as follows:
An offer by a merchant to buy or sell goods in a signed record[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 (3) months[;] and[but] any such term of
assurance on a form supplied by the offeree must be separately signed by the offeror.
Section 11. KRS 355.2-209 is amended to read as follows:
(1) An agreement modifying a contract within this article needs no consideration to be binding.
(2) A signed agreement that[which] excludes modification or rescission except by a signed writing or other
signed record 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 (KRS 355.2-201) 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) of
this section, 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.
Section 12. KRS 355.2A-102 is amended to read as follows:
(1) This article applies to any transaction, regardless of form, that creates a lease and, in the case of a hybrid
lease, it applies to the extent provided in subsection (2) of this section.
(2) In a hybrid lease:
(a) If the lease-of-goods aspects do not predominate:
1. Only the provisions of this article which relate primarily to the lease-of-goods aspects of the
transaction apply, and the provisions that relate primarily to the transaction as a whole do not
apply;
2. KRS 355.2A-209 applies if the lease is a finance lease; and
3. KRS 355.2A-407 applies to the promises of the lessee in a finance lease to the extent the
promises are consideration for the right to possession and use of the leased goods; and
(b) If the lease-of-goods aspects predominate, this article applies to the transaction, but does not
preclude application in appropriate circumstances of other law to aspects of the lease which do not
relate to the lease of goods.
Section 13. KRS 355.2A-103 is amended to read as follows:
(1) In this article, unless the context otherwise requires:
(a) 1. "Buyer in ordinary course of business" means a person who, in good faith and without
knowledge that the sale to the person[him] 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.
2. "Buying" may be for cash or by exchange of other property or on secured or unsecured credit and
includes receiving 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) 1. "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. ACTS OF THE GENERAL ASSEMBLY 8
2. 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 a personal, family, or
household purpose;
(f) "Fault" means wrongful act, omission, breach, or default;
(g) "Finance lease" means a lease with respect to which:
1. The lessor does not select, manufacture, or supply the goods;
2. The lessor acquires the goods or the right to possession and use of the goods in connection with
the lease; and
3. One (1) 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:[ (a) ]
i. 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;[, (b) ]
ii. 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[ (c) ]
iii. 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;
(h) 1. "Goods" means all things that are movable at the time of identification to the lease contract, or
are fixtures (KRS 355.2A-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.
2. The term also includes the unborn young of animals;
(i) "Hybrid lease" means a single transaction involving a lease of goods and:
1. The provision of services;
2. A sale of other goods; or
3. A sale, lease, or license of property other than goods;
(j) "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; CHAPTER 10
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(k)[(j)] 1. "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.
2. Unless the context clearly indicates otherwise, the term includes a sublease;
(l)[(k)] 1. "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.
2. Unless the context clearly indicates otherwise, the term includes a sublease agreement;
(m)[(l)] 1. "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.
2. Unless the context clearly indicates otherwise, the term includes a sublease contract;
(n)[(m)] "Leasehold interest" means the interest of the lessor or the lessee under a lease contract;
(o)[(n)] 1. "Lessee" means a person who acquires the right to possession and use of goods under a
lease.
2. Unless the context clearly indicates otherwise, the term includes a sublessee;
(p)[(o)] 1. "Lessee in ordinary course of business" means a person who, in good faith and without
knowledge that the lease to the person[him] 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.
2. "Leasing" may be for cash or by exchange of other property or on secured or unsecured credit
and includes receiving 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;
(q)[(p)] 1. "Lessor" means a person who transfers the right to possession and use of goods under a
lease.
2. Unless the context clearly indicates otherwise, the term includes a sublessor;
(r)[(q)] "Lessor's residual interest" means the lessor's interest in the goods after expiration, termination,
or cancellation of the lease contract;
(s)[(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;
(t)[(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;[.]
(u)[(t)] "Merchant lessee" means a lessee that is a merchant with respect to goods of the kind subject to
the lease;
(v)[(u)] 1. "Present value" means the amount as of a date certain of one (1) or more sums payable in
the future, discounted to the date certain.
2. 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;
(w)[(v)] "Purchase" includes taking by sale, lease, mortgage, security interest, pledge, gift, or any other
voluntary transaction creating an interest in goods;
(x)[(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;
(y)[(x)] "Supplier" means a person from whom a lessor buys or leases goods to be leased under a finance
lease;
(z)[(y)] "Supply contract" means a contract under which a lessor buys or leases goods to be leased; and ACTS OF THE GENERAL ASSEMBLY 10
(aa)[(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) The following[Other] definitions in[applying to] this article apply to this article[and the sections in which they
appear are]:
(a) "Accessions." KRS 355.2A-310(1);
(b) "Construction mortgage." KRS 355.2A-309(1)[(d)];
(c) "Encumbrance." KRS 355.2A-309(1)[(e)];
(d) "Fixtures." KRS 355.2A-309(1)[(a)];
(e) "Fixture filing." KRS 355.2A-309(1)[(b)]; and
(f) "Purchase money lease." KRS 355.2A-309(1)[(c)].
(3) The following definitions in other articles apply to this article:
(a) "Account." KRS 355.9-102[(1)(b)];
(b) "Between merchants." KRS 355.2-104[(3)];
(c) "Buyer." KRS 355.2-103(1)[(a)];
(d) "Chattel paper." KRS 355.9-102[(1)(k)];
(e) "Consumer goods." KRS 355.9-102[(1)(w)];
(f) "Document." KRS 355.9-102[(1)(ad)];
(g) "Entrusting." KRS 355.2-403(3);
(h) "General intangible." KRS 355.9-102[(1)(ap)];
(i) "Instrument." KRS 355.9-102[(1)(au)];
(j) "Merchant." KRS 355.2-104[(1)];
(k) "Mortgage." KRS 355.9-102[(1)(bc)];
(l) "Pursuant to commitment." KRS 355.9-102[(1)(bq)];
(m) "Receipt." KRS 355.2-103[(1)(c)];
(n) "Sale." KRS 355.2-106(1);
(o) "Sale on approval." KRS 355.2-326;
(p) "Sale or return." KRS 355.2-326; and
(q) "Seller." KRS 355.2-103[(1)(d)].
(4) In addition, Article 1 of this chapter contains general definitions and principles of construction and
interpretation applicable throughout this article.
Section 14. KRS 355.2A-107 is amended to read as follows:
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 in a signed record[and] delivered by the aggrieved party.
Section 15. KRS 355.2A-201 is amended to read as follows:
(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 five hundred dollars ($500); or
(b) There is a record[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) of this section,
whether or not it is specific, if it reasonably identifies what is described. CHAPTER 10
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(3) A record[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) of this section beyond the lease term and the quantity of
goods shown in the record[writing].
(4) A lease contract that does not satisfy the requirements of subsection (1) of this section, 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 or[,] 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) of this section is:
(a) If there is a record[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 or[,] testimony, or
otherwise, in court a lease term, the term so admitted; or
(c) A reasonable lease term.
Section 16. KRS 355.2A-202 is amended to read as follows:
Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a
record[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:
(1) By course of dealing or usage of trade or by course of performance; and
(2) By evidence of consistent additional terms unless the court finds the record[writing] to have been intended
also as a complete and exclusive statement of the terms of the agreement.
Section 17. KRS 355.2A-203 is amended to read as follows:
The affixing of a seal to a record[writing] evidencing a lease contract or an offer to enter into a lease contract does
not render the record[writing] a sealed instrument and the law with respect to sealed instruments does not apply to
the lease contract or offer.
Section 18. KRS 355.2A-205 is amended to read as follows:
An offer by a merchant to lease goods to or from another person in a signed record[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 three (3) months and[.] any such
term of assurance on a form supplied by the offeree must be separately signed by the offeror.
Section 19. KRS 355.2A-208 is amended to read as follows:
(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 record cannot[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) of this
section, 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.
Section 20. KRS 355.3-104 is amended to read as follows: ACTS OF THE GENERAL ASSEMBLY 12
(1) Except as provided in subsections (3) and (4) of this section, "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:
(a) Is payable to bearer or to order at the time it is issued or first comes into possession of a holder;
(b) Is payable on demand or at a definite time; and
(c) 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:
1. An undertaking or power to give, maintain, or protect collateral to secure payment;
2. An authorization or power to the holder to confess judgment or realize on or dispose of
collateral;[ or]
3. A waiver of the benefit of any law intended for the advantage or protection of an obligor;
4. A term that specifies the law that governs the promise or order; or
5. An undertaking to resolve in a specified forum a dispute concerning the promise or order.
(2) "Instrument" means a negotiable instrument.
(3) An order that meets all of the requirements of subsection (1) of this section, except paragraph (a) of that
subsection, and otherwise falls within the definition of "check" in subsection (6) of this section is a negotiable
instrument and a check.
(4) 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.
(5) (a) An instrument is a "note" if it is a promise and is a "draft" if it is an order.
(b) If an instrument falls within the definition of both "note" and "draft," a person entitled to enforce the
instrument may treat it as either.
(6) (a) "Check" means:
1.[(a)] A draft, other than a documentary draft, payable on demand and drawn on a bank; or
2.[(b)] A cashier's check or teller's check.
(b) An instrument may be a check even though it is described on its face by another term, such as "money
order."
(7) "Cashier's check" means a draft with respect to which the drawer and drawee are the same bank or branches of
the same bank.
(8) "Teller's check" means a draft drawn by a bank:
(a) On another bank; or
(b) Payable at or through a bank.
(9) "Traveler's check" means an instrument that:
(a) Is payable on demand;
(b) Is drawn on or payable at or through a bank;
(c) Is designated by the term "traveler's check" or by a substantially similar term; and
(d) Requires, as a condition to payment, a countersignature by a person whose specimen signature appears
on the instrument.
(10) (a) "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.
(b) A certificate of deposit is a note of the bank.
Section 21. KRS 355.3-105 is amended to read as follows:
(1) "Issue" means: CHAPTER 10
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(a) 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; or
(b) If agreed by the payee, the first transmission by the drawer to the payee of an image of an item and
information derived from the item that enables the depositary bank to collect the item by transferring
or presenting under federal law an electronic check.
(2) (a) An unissued instrument, or an unissued incomplete instrument that is completed, is binding on the
maker or drawer, but nonissuance is a defense.
(b) 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.
(3) "Issuer" applies to issued and unissued instruments and means a maker or drawer of an instrument.
Section 22. KRS 355.3-401 is amended to read as follows:
[(1) ]A person is not liable on an instrument unless:
(1)[(a)] The person signed the instrument; or
(2)[(b)] The person is represented by an agent or representative who signed the instrument and the signature is
binding on the represented person under KRS 355.3-402.
[(2) A signature may be made:
(a) Manually or by means of a device or machine; and
(b) 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.]
Section 23. KRS 355.3-417 is amended to read as follows:
(1) (a) If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or
accepts the draft,
1. The person obtaining payment or acceptance, at the time of presentment; and
2. A previous transferor of the draft, at the time of transfer,
warrant to the drawee making payment or accepting the draft in good faith the conditions set out in
paragraph (b) of this subsection.
(b) 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;
3. The warrantor has no knowledge that the signature of the drawer of the draft is unauthorized; and
4. With respect to any remotely created item, that the person on whose account the item is drawn
authorized the issuance of the item in the amount for which the item is drawn.
(2) (a) 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,
including reasonable attorney's fees, and loss of interest resulting from the breach.
(b) 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.
(c) If the drawee accepts the draft, breach of warranty is a defense to the obligation of the acceptor.
(d) 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.
(3) If a drawee asserts a claim for breach of warranty under subsection (1) of this section based on an
unauthorized indorsement of the draft or an alteration of the draft, the warrantor may defend by proving that ACTS OF THE GENERAL ASSEMBLY 14
the indorsement is effective under KRS 355.3-404 or 355.3-405 or the drawer is precluded under KRS 355.3-
406 or 355.4-406 from asserting against the drawee the unauthorized indorsement or alteration.
(4) (a) If:
1. a. A dishonored draft is presented for payment to the drawer or an indorser; or
b. Any other instrument is presented for payment to a party obliged to pay the instrument;
and
2. Payment is received,
the rules set out in paragraph (b) of this subsection apply.
(b) 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, including reasonable attorney's fees, and loss of
interest resulting from the breach.
(5) (a) The warranties stated in subsections (1) and (4) of this section cannot be disclaimed with respect to
checks.
(b) Unless notice of a claim for breach of warranty is given to the warrantor within thirty (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 (2) or (4) of this section is discharged to the extent of any loss caused by the
delay in giving notice of the claim.
(6) A claim for relief for breach of warranty under this section accrues when the claimant has reason to know of
the breach.
Section 24. KRS 355.3-604 is amended to read as follows:
(1) (a) A person entitled to enforce an instrument, with or without consideration, may discharge the obligation
of a party to pay the instrument:
1.[(a)] 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
2.[(b)] By agreeing not to sue or otherwise renouncing rights against the party by a signed record.
(b) The obligation of a party to pay the instrument is not discharged solely by the destruction of a check
in connection with a process in which information is extracted from the check and an image of the
check is made and, subsequently, the information and image are transmitted for payment.
(2) Cancellation or striking out of an indorsement pursuant to subsection (1) of this section does not affect the
status and rights of a party derived from the indorsement.
[(3) In this section, "signed," with respect to a record that is not in writing, includes the attachment to or logical
association with the record of an electronic symbol, sound, or process with the present intent to adopt or accept
the record.]
Section 25. KRS 355.4-208 is amended to read as follows:
(1) (a) If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or
accepts the draft,
1. The person obtaining payment or acceptance, at the time of presentment; and
2. A previous transferor of the draft, at the time of transfer,
warrant to the drawee that pays or accepts the draft in good faith the conditions set out in paragraph (b)
of this subsection. CHAPTER 10
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(b) 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;
3. The warrantor has no knowledge that the signature of the purported drawer of the draft is
unauthorized; and
4. With respect to any remotely created item, that the person on whose account the item is drawn
authorized the issuance of the item in the amount for which the item is drawn.
(2) (a) 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, including
reasonable attorney's fees, and loss of interest resulting from the breach.
(b) 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.
(c) If the drawee accepts the draft:
1.[(a)] Breach of warranty is a defense to the obligation of the acceptor; and
2.[(b)] 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.
(3) If a drawee asserts a claim for breach of warranty under subsection (1) of this section 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 KRS 355.3-404 or 355.3-405 or the drawer is precluded under KRS 355.3-
406 or 355.4-406 from asserting against the drawee the unauthorized indorsement or alteration.
(4) (a) If:
1.[(a)] A dishonored draft is presented for payment to the drawer or an indorser; or
2.[(b)] 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.
(b) The person making payment may recover from any warrantor for breach of warranty an amount equal
to the amount paid plus expenses, including reasonable attorney's fees, and loss of interest resulting
from the breach.
(5) (a) The warranties stated in subsections (1) and (4) of this section cannot be disclaimed with respect to
checks.
(b) Unless notice of a claim for breach of warranty is given to the warrantor within thirty (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.
(6) A claim for relief for breach of warranty under this section accrues when the claimant has reason to know of
the breach.
Section 26. KRS 355.4A-103 is amended to read as follows:
(1) In this article:
(a) "Payment order" means an instruction of a sender to a receiving bank, transmitted orally[,
electronically,] or in a record[writing], to pay, or to cause another bank to pay, a fixed or determinable
amount of money to a beneficiary if:
1. The instruction does not state a condition to payment to the beneficiary other than time of
payment; ACTS OF THE GENERAL ASSEMBLY 16
2. The receiving bank is to be reimbursed by debiting an account of, or otherwise receiving
payment from, the sender; and
3. 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.
(b) "Beneficiary" means the person to be paid by the beneficiary's bank.
(c) "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.
(d) "Receiving bank" means the bank to which the sender's instruction is addressed.
(e) "Sender" means the person giving the instruction to the receiving bank.
(2) If an instruction complying with subsection (1)(a) of this section is to make more than one (1) payment to a
beneficiary, the instruction is a separate payment order with respect to each payment.
(3) A payment order is issued when it is sent to the receiving bank.
Section 27. KRS 355.4A-201 is amended to read as follows:
(1) "Security procedure" means a procedure established by agreement of a customer and a receiving bank for the
purpose of:
(a)[(1)] Verifying that a payment order or communication amending or canceling a payment order is that
of the customer; or
(b)[(2)] Detecting error in the transmission or the content of the payment order or communication.
(2) A security procedure may:
(a) Impose an obligation on the receiving bank or the customer; and
(b) Require the use of algorithms or other codes, identifying words,[ or] numbers, symbols, sounds,
biometrics, encryption, callback procedures, or similar security devices.
(3) Comparison of a signature on a payment order or communication with an authorized specimen signature of the
customer or requiring a payment order to be sent from a known email address, IP address, or phone
number is not by itself a security procedure.
Section 28. KRS 355.4A-202 is amended to read as follows:
(1) 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.
(2) (a) 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:
1.[(a)] The security procedure is a commercially reasonable method of providing security against
unauthorized payment orders; and
2.[(b)] The bank proves that it accepted the payment order in good faith and in compliance with the
bank's obligations under the security procedure and any[ written] agreement or instruction of
the customer, evidenced by a record, restricting acceptance of payment orders issued in the name
the customer.
(b) The bank is not required to follow an instruction that violates an[a written] agreement with the
customer, evidenced by a record, 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.
(3) (a) 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.
(b) A security procedure is deemed to be commercially reasonable if: CHAPTER 10
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1.[(a)] 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
2.[(b)] The customer expressly agreed in a record[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 bank's
obligations under the security procedure chosen by the customer.
(4) The term "sender" in this article includes the customer in whose name a payment order is issued if the order is:
(a) The authorized order of the customer under subsection (1) of this section;[,] or[ it is ]
(b) Effective as the order of the customer under subsection (2) of this section.
(5) This section applies to amendments and cancellations of payment orders to the same extent it applies to
payment orders.
(6) Except as provided in this section and in KRS 355.4A-203(1)(a), rights and obligations arising under this
section or KRS 355.4A-203 may not be varied by agreement.
Section 29. KRS 355.4A-203 is amended to read as follows:
(1) If an accepted payment order is not, under KRS 355.4A-202(1), an authorized order of a customer identified as
sender, but is effective as an order of the customer pursuant to KRS 355.4A-202(2), the following rules apply:
(a) By express[ written] agreement, evidenced by a record, the receiving bank may limit the extent to
which it is entitled to enforce or retain payment of the payment order; and[.]
(b) 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:
1. Entrusted at any time with duties to act for the customer with respect to payment orders or the
security procedure; or
2. 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.
[ Information includes any access device, computer software, or the like.]
(2) This section applies to amendments of payment orders to the same extent it applies to payment orders.
Section 30. KRS 355.4A-207 is amended to read as follows:
(1) Subject to subsection (2) of this section, 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.
(2) 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:
(a) Except as otherwise provided in subsection (3) of this section:[,]
1. 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; and[.]
2. The beneficiary's bank need not determine whether the name and number refer to the same
person; and[.]
(b) 1. 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.
2. If no person has rights as beneficiary, acceptance of the order cannot occur.
(3) [(a) ] If a payment order described in subsection (2) of this section is accepted,[;
(b) ] the originator's payment order described the beneficiary inconsistently by name and number,[;] and [ ACTS OF THE GENERAL ASSEMBLY 18
(c) ]the beneficiary's bank pays the person identified by number as permitted by subsection (2)(a) of this
section, the following rules apply:
(a)[1.] If the originator is a bank, the originator is obliged to pay its order; and[.]
(b)[2.] 1. 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.
2. Proof of notice may be made by any admissible evidence.
3. The originator's bank satisfies the burden of proof if it proves that the originator, before the
payment order was accepted, signed a record[writing] stating the information to which the notice
relates.
(4) In a case governed by subsection (2)(a) of this section, 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:
(a) If the originator is obliged to pay its payment order as stated in subsection (3) of this section, the
originator has the right to recover; and[.]
(b) 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.
Section 31. KRS 355.4A-208 is amended to read as follows:
(1) (a) This subsection applies to a payment order identifying an intermediary bank or the beneficiary's bank
only by an identifying number.
(b)[(a)] 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.
(c)[(b)] 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) (a) 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.
(b)[(a)] 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.
2. The receiving bank need not determine whether the name and number refer to the same person or
whether the number refers to a bank.
3. 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.
(c)[(b)] 1. 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 paragraph (b) of this subsection[subsection (1)(b)], as though
the sender were a bank.
2. Proof of notice may be made by any admissible evidence.
3. The receiving bank satisfies the burden of proof if it proves that the sender, before the payment
order was accepted, signed a record[writing] stating the information to which the notice relates.
(d)[(c)] 1. 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 CHAPTER 10
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time it executes the sender's order, does not know that the name and number identify different
persons.
2. The receiving bank need not determine whether the name and number refer to the same person.
(e)[(d)] 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 KRS 355.4A-302(1)(a).
Section 32. KRS 355.4A-210 is amended to read as follows:
(1) (a) A payment order is rejected by the receiving bank by a notice of rejection transmitted to the sender
orally[, electronically,] or in a record[writing].
(b) 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.
(c) Rejection is effective when the notice is given if transmission is by a means that is reasonable in the
circumstances.
(d) If notice of rejection is given by a means that is not reasonable, rejection is effective when the notice is
received.
(e) If an agreement of the sender and receiving bank establishes the means to be used to reject a payment
order:
1.[(a)] Any means complying with the agreement is reasonable; and
2.[(b)] Any means not complying is not reasonable unless no significant delay in receipt of the notice
resulted from the use of the noncomplying means.
(2) (a) 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.
(b) 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 KRS 355.4A-211(4) 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.
(3) If a receiving bank suspends payments, all unaccepted payment orders issued to it are deemed rejected at the
time the bank suspends payments.
(4) (a) Acceptance of a payment order precludes a later rejection of the order.
(b) Rejection of a payment order precludes a later acceptance of the order.
Section 33. KRS 355.4A-211 is amended to read as follows:
(1) (a) A communication of the sender of a payment order canceling or amending the order may be transmitted
to the receiving bank orally[, electronically,] or in a record[writing].
(b) 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.
(2) Subject to subsection (1) of this section, a communication by the sender canceling 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.
(3) (a) 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. ACTS OF THE GENERAL ASSEMBLY 20
(b)[(a)] 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.
(c)[(b)] 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:
1. That is a duplicate of a payment order previously issued by the sender;
2. That orders payment to a beneficiary not entitled to receive payment from the originator; or
3. 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.
(4) 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.
(5) (a) A canceled payment order cannot be accepted.
(b) If an accepted payment order is canceled, the acceptance is nullified and no person has any right or
obligation based on the acceptance.
(c) 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.
(6) 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.
(7) 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.
(8) A funds-transfer system rule is not effective to the extent it conflicts with subsection (3)(c)[(b)] of this section.
Section 34. KRS 355.4A-305 is amended to read as follows:
(1) If a funds transfer is completed but execution of a payment order by the receiving bank in breach of KRS
355.4A-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 (3) of this section, additional damages are not recoverable.
(2) If execution of a payment order by a receiving bank in breach of KRS 355.4A-302 results in [:
(a) ]noncompletion of the funds transfer, [;
(b) ]failure to use an intermediary bank designated by the originator,[;] or [
(c) ]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 (1) of this section, resulting from the improper
execution. Except as provided in subsection (3) of this section, additional damages are not recoverable.
(3) In addition to the amounts payable under subsections (1) and (2) of this section, damages, including
consequential damages, are recoverable to the extent provided in an express[ written] agreement of the
receiving bank, evidenced by a record.
(4) 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, evidenced by a
record, but are not otherwise recoverable. CHAPTER 10
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(5) (a) Reasonable attorney's fees are recoverable if demand for compensation under subsection (1) or (2) of
this section is made and refused before an action is brought on the claim.
(b) If a claim is made for breach of an agreement under subsection (4) of this section and the agreement
does not provide for damages, reasonable attorney's fees are recoverable if demand for compensation
under subsection (4) of this section is made and refused before an action is brought on the claim.
(6) Except as stated in this section, the liability of a receiving bank under subsections (1) and (2) of this section
may not be varied by agreement.
Section 35. KRS 355.5-104 is amended to read as follows:
A letter of credit, confirmation, advice, transfer, amendment, or cancellation may be issued in any form that is a
signed record[ and is authenticated:
(1) By a signature; or
(2) In accordance with the agreement of the parties or the standard practice referred to in KRS 355.5-108(5)].
Section 36. KRS 355.5-116 is amended to read as follows:
(1) 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 KRS 355.5-104] 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.
(2) Unless subsection (1) 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 (1) address
is indicated, the person is considered to be located at the address from which the person's undertaking was
issued.
(3) For purposes 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 subsection
(4) of this section.
(4) A branch of a bank is considered to be located at the address indicated in the branch's undertaking. If more
than one (1) address is indicated, the branch is considered to be located at the address from which the
undertaking was issued.
(5) (a) 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.
(b) If [:
(a) ]this article would govern the liability of an issuer, nominated person, or adviser under subsection (1) or
(2) of this section, [;
(b) ]the relevant undertaking incorporates rules of custom or practice,[;] and [
(c) ]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 nonvariable provisions specified in KRS 355.5-103(3).
(6)[(3)] If there is conflict between this article and Article 3, 4, 4A, or 9 of this chapter, this article governs.
(7)[(4)] 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 (1) of this
section.
Section 37. KRS 355.7-102 is amended to read as follows:
(1) In this article, unless the context otherwise requires: ACTS OF THE GENERAL ASSEMBLY 22
(a) "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;
(b) "Carrier" means a person that issues a bill of lading;
(c) "Consignee" means a person named in a bill of lading to which or to whose order the bill promises
delivery;
(d) "Consignor" means a person named in a bill of lading as the person from which the goods have been
received for shipment;
(e) "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;
(f) Reserved;
(g) "Goods" means all things that are treated as movable for the purposes of a contract for storage or
transportation;
(h) 1. "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.
2. 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;
(i) "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;
(j) Reserved;
(k) Reserved["Sign" means, with present intent to authenticate or adopt a record:
1. To execute or adopt a tangible symbol; or
2. To attach to or logically associate with the record an electronic sound, symbol, or process];
(l) "Shipper" means a person that enters into a contract of transportation with a carrier; and
(m) "Warehouse" means a person engaged in the business of storing goods for hire.
(2) Definitions in other articles applying to this article and the sections in which they appear are:
(a) "Contract for sale," KRS 355.2-106;
(b) "Lessee in ordinary course of business," KRS 355.2A-103; and
(c) "‘Receipt' of goods," KRS 355.2-103.
(3) In addition, Article 1 of this chapter[KRS Chapter 355] contains general definitions and principles of
construction and interpretation applicable throughout this article.
Section 38. KRS 355.7-106 is amended to read as follows:
(1) 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.
(2) A system satisfies subsection (1) of this section, and a person has[is deemed to have] control of an electronic
document of title, if the document is created, stored, and transferred[assigned] in[ such] a manner that:
(a) A single authoritative copy of the document exists which is unique, identifiable, and, except as
otherwise provided in paragraphs (d), (e), and (f) of this subsection, unalterable;
(b) The authoritative copy identifies the person asserting control as:
1. The person to which the document was issued; or
2. If the authoritative copy indicates that the document has been transferred, the person to which the
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(c) The authoritative copy is communicated to and maintained by the person asserting control or its
designated custodian;
(d) Copies or amendments that add or change an identified transferee[assignee] of the authoritative copy
can be made only with the consent of the person asserting control;
(e) 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
(f) Any amendment of the authoritative copy is readily identifiable as authorized or unauthorized.
(3) A system satisfies subsection (1) of this section, and a person has control of an electronic document of title,
if an authoritative electronic copy of the document, a record attached to or logically associated with the
electronic copy, or a system in which the electronic copy is recorded:
(a) Enables the person to readily identify each electronic copy as either an authoritative copy or a
nonauthoritative copy;
(b) Enables the person to readily identify itself in any way, including by name, identifying number,
cryptographic key, office, or account number, as the person to which each authoritative electronic
copy was issued or transferred; and
(c) Gives the person exclusive power, subject to subsection (4) of this section, to:
1. Prevent others from adding or changing the person to which each authoritative electronic
copy has been issued or transferred; and
2. Transfer control of each authoritative electronic copy.
(4) Subject to subsection (5) of this section, a power is exclusive under subsection (3)(c)1. and 2. of this section
even if:
(a) The authoritative electronic copy, a record attached to or logically associated with the authoritative
electronic copy, or a system in which the authoritative electronic copy is recorded limits the use of the
document of title or has a protocol that is programmed to cause a change, including a transfer or loss
of control; or
(b) The power is shared with another person.
(5) A power of a person is not shared with another person under subsection (4)(b) of this section and the
person's power is not exclusive if:
(a) The person can exercise the power only if the power also is exercised by the other person; and
(b) The other person:
1. Can exercise the power without exercise of the power by the person; or
2. Is the transferor to the person of an interest in the document of title.
(6) If a person has the powers specified in subsection (3)(c)1. and 2. of this section, the powers are presumed to
be exclusive.
(7) A person has control of an electronic document of title if another person, other than the transferor to the
person of an interest in the document:
(a) Has control of the document and acknowledges that it has control on behalf of the person; or
(b) Obtains control of the document after having acknowledged that it will obtain control of the
document on behalf of the person.
(8) A person that has control under this section is not required to acknowledge that it has control on behalf of
another person.
(9) If a person acknowledges that it has or will obtain control on behalf of another person, unless the person
otherwise agrees or law other than this article or Article 9 of this chapter otherwise provides, the person
does not owe any duty to the other person and is not required to confirm the acknowledgment to any other
person.
Section 39. KRS 355.8-102 is amended to read as follows: ACTS OF THE GENERAL ASSEMBLY 24
(1) In this article:
(a) "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;
(b) "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 indorsement;
(c) "Broker" means a person defined as a broker or dealer under the federal securities laws, but without
excluding a bank acting in that capacity;
(d) "Certificated security" means a security that is represented by a certificate;
(e) "Clearing corporation" means:
1. A person that is registered as a "clearing agency" under the federal securities laws;
2. A federal reserve bank; or
3. 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;
(f) "Communicate" means to:
1. Send a signed record[writing]; or
2. Transmit information by any mechanism agreed upon by the persons transmitting and receiving
the information;
(g) 1. "Entitlement holder" means a person identified in the records of a securities intermediary as the
person having a security entitlement against the securities intermediary.
2. If a person acquires a security entitlement by virtue of KRS 355.8-501(2)(b) or (c), that person is
the entitlement holder;
(h) "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;
(i) 1. "Financial asset," except as otherwise provided in KRS 355.8-103, means:
a.[1.] A security;
b.[2.] 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
c.[3.] 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.
2. 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;
(j) [(]Reserved[)];
(k) "Indorsement" 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;
(l) "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;
(m) "Registered form," as applied to a certificated security, means a form in which:
1. The security certificate specifies a person entitled to the security; and CHAPTER 10
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2. 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;
(n) "Securities intermediary" means:
1. A clearing corporation; or
2. 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;
(o) "Security," except as otherwise provided in KRS 355.8-103, 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:
1. 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;
2. 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
3. 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;
(p) "Security certificate" means a certificate representing a security;
(q) "Security entitlement" means the rights and property interest of an entitlement holder with respect to a
financial asset specified in Part 5 of this article; and
(r) "Uncertificated security" means a security that is not represented by a certificate.
(2) The following definitions in[Other definitions applying to] this article and other articles of this chapter apply
to this article[the sections in which they appear are]:
(a) "Appropriate person." KRS 355.8-107;
(b) "Control." KRS 355.8-106;
(c) "Controllable account." Section 44 of this Act;
(d) "Controllable electronic record." Section 95 of this Act;
(e) "Controllable payment intangible." Section 44 of this Act;
(f) "Delivery." KRS 355.8-301;
(g)[(d)] "Investment company security." KRS 355.8-103;
(h)[(e)] "Issuer." KRS 355.8-201;
(i)[(f)] "Overissue." KRS 355.8-210;
(j)[(g)] "Protected purchaser." KRS 355.8-303; and
(k)[(h)] "Securities account." KRS 355.8-501.
(3) In addition, Article 1 of this chapter contains general definitions and principles of construction and
interpretation applicable throughout this article.
(4) 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.
Section 40. KRS 355.8-103 is amended to read as follows:
(1) A share or similar equity interest issued by a corporation, business trust, joint stock company, or similar entity
is a security.
(2) (a) An "investment company security" is a security. ACTS OF THE GENERAL ASSEMBLY 26
(b) "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 that is so registered, or a face-amount certificate issued by a face-amount certificate
company that is so registered.
(c) Investment company security does not include an insurance policy or endowment policy or annuity
contract issued by an insurance company.
(3) (a) An interest in a partnership or limited liability company is not a security unless:
1. It is dealt in or traded on securities exchanges or in securities markets;[,]
2. Its terms expressly provide that it is a security governed by this article;[,] or
3. It is an investment company security.
(b) However, an interest in a partnership or limited liability company is a financial asset if it is held in a
securities account.
(4) (a) A writing that is a security certificate is governed by this article and not by Article 3 of this chapter,
even though it also meets the requirements of that article.
(b) However, a negotiable instrument governed by Article 3 of this chapter is a financial asset if it is held in
a securities account.
(5) An option or similar obligation issued by a clearing corporation to its participants is not a security, but is a
financial asset.
(6) A commodity contract, as defined in KRS 355.9-102(1)[(o)], is not a security or a financial asset.
(7) A document of title, as defined in KRS 355.1-201(2)[(p)], is not a financial asset unless KRS 355.8-
102(1)(i)1.c.[3.] applies.
(8) A controllable account, controllable electronic record, or controllable payment intangible is not a financial
asset unless subsection (1)(i)1.c. of Section 39 of this Act applies.
Section 41. KRS 355.8-106 is amended to read as follows:
(1) A purchaser has "control" of a certificated security in bearer form if the certificated security is delivered to the
purchaser.
(2) A purchaser has "control" of a certificated security in registered form if the certificated security is delivered to
the purchaser, and:
(a) The certificate is indorsed to the purchaser or in blank by an effective indorsement; or
(b) The certificate is registered in the name of the purchaser, upon original issue or registration of transfer
by the issuer.
(3) A purchaser has "control" of an uncertificated security if:
(a) The uncertificated security is delivered to the purchaser; or
(b) The issuer has agreed that it will comply with instructions originated by the purchaser without further
consent by the registered owner.
(4) A purchaser has "control" of a security entitlement if:
(a) The purchaser becomes the entitlement holder;
(b) The securities intermediary has agreed that it will comply with entitlement orders originated by the
purchaser without further consent by the entitlement holder; or
(c) Another person, other than the transferor to the purchaser of an interest in the security entitlement:
1. Has control of the security entitlement and[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
2. Obtains control of the security entitlement after having acknowledged that it will obtain
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(5) 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.
(6) A purchaser who has satisfied the requirements of subsection (3) or (4) of this section has control, even if the
registered owner in the case of subsection (3) of this section or the entitlement holder in the case of subsection
(4) of this section 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.
(7) An issuer or a securities intermediary may not enter into an agreement of the kind described in subsection
(3)(b) or (4)(b) of this section 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.
(8) A person that has control under this section is not required to acknowledge that it has control on behalf of a
purchaser.
(9) If a person acknowledges that it has or will obtain control on behalf of a purchaser, unless the person
otherwise agrees or law other than this article or Article 9 of this chapter otherwise provides, the person
does not own any duty to the purchaser and is not required to confirm the acknowledgment to any other
person.
Section 42. KRS 355.8-110 is amended to read as follows:
(1) The local law of the issuer's jurisdiction, as specified in subsection (4) of this section, governs:
(a) The validity of a security;
(b) The rights and duties of the issuer with respect to registration of transfer;
(c) The effectiveness of registration of transfer by the issuer;
(d) Whether the issuer owes any duties to an adverse claimant to a security; and
(e) 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.
(2) The local law of the securities intermediary's jurisdiction, as specified in subsection (5) of this section,
governs:
(a) Acquisition of a security entitlement from the securities intermediary;
(b) The rights and duties of the securities intermediary and entitlement holder arising out of a security
entitlement;
(c) Whether the securities intermediary owes any duties to an adverse claimant to a security entitlement;
and
(d) 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.
(3) 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.
(4) (a) "Issuer's jurisdiction" means the jurisdiction under which the issuer of the security is organized or, if
permitted by the law of that jurisdiction, the law of another jurisdiction specified by the issuer.
(b) An issuer organized under the law of this Commonwealth may specify the law of another jurisdiction as
the law governing the matters specified in subsection (1)(b) to (e) of this section.
(5) The following rules determine a "securities intermediary's jurisdiction" for purposes of this section:
(a) 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 ACTS OF THE GENERAL ASSEMBLY 28
purposes of this part of this article, this article, or Article 9 of this chapter, that jurisdiction is the
securities intermediary's jurisdiction;[.]
(b) If paragraph (a) of this subsection 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;[.]
(c) If neither paragraph (a) nor paragraph (b) of this subsection 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;[.]
(d) If none of the preceding paragraphs of this subsection 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; and[.]
(e) If none of the preceding paragraphs of this subsection applies, the securities intermediary's jurisdiction
is the jurisdiction in which the chief executive office of the securities intermediary is located.
(6) A securities intermediary's jurisdiction is not determined by the:
(a) Physical location of certificates representing financial assets;[, or by the ]
(b) 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 ]
(c) Location of facilities for data processing or other record keeping concerning the account.
(7) The local law of the issuer's jurisdiction or the securities intermediary's jurisdiction governs a matter or
transaction specified in subsection (1) or (2) of this section even if the matter or transaction does not bear
any relation to the jurisdiction.
Section 43. KRS 355.8-303 is amended to read as follows:
(1) "Protected purchaser" means a purchaser of a certificated or uncertificated security, or of an interest therein,
who:
(a) Gives value;
(b) Does not have notice of any adverse claim to the security; and
(c) Obtains control of the certificated or uncertificated security.
(2) [In addition to acquiring the rights of a purchaser, ]A protected purchaser[ also] acquires its interest in the
security free of any adverse claim.
Section 44. KRS 355.9-102 is amended to read as follows:
(1) In this article:
(a) "Accession" means goods that are physically united with other goods in such a manner that the identity
of the original goods is not lost;
(b) 1. "Account," except as used in "account for," "account statement," "account to," "commodity
account" in paragraph (p) of this subsection, "customer's account," "deposit account" in
paragraph (ag) of this subsection, "on account of," and "statement of account," means 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; CHAPTER 10
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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.
2. The term includes:
a. Controllable accounts; and
b. Health-care-insurance receivables.
3. The term does not include:
a. [Rights to payment evidenced by ]Chattel paper[ or an instrument];
b. Commercial tort claims;
c. Deposit accounts;
d. Investment property;
e. Letter-of-credit rights or letters of credit;[ or]
f. Rights to payment for money or funds advanced or sold, other than rights arising out of
the use of a credit or charge card or information contained on or for use with the card; or
g. Rights to payment evidenced by an instrument;
(c) 1. "Account debtor" means a person obligated on an account, chattel paper, or general intangible.
2. The term does not include persons obligated to pay a negotiable instrument, even if the
negotiable instrument evidences[constitutes part of] chattel paper;
(d) "Accounting," except as used in "accounting for," means a record:
1. Signed[Authenticated] by a secured party;
2. Indicating the aggregate unpaid secured obligations as of a date not more than thirty-five (35)
days earlier or thirty-five (35) days later than the date of the record; and
3. Identifying the components of the obligations in reasonable detail;
(e) "Agricultural lien" means an interest in farm products:
1. Which secures payment or performance of an obligation for:
a. Goods or services furnished in connection with a debtor's farming operation; or
b. Rent on real property leased by a debtor in connection with its farming operation;
2. Which is created by statute in favor of a person that:
a. In the ordinary course of its business furnished goods or services to a debtor in connection
with a debtor's farming operation; or
b. Leased real property to a debtor in connection with the debtor's farming operation; and
3. Whose effectiveness does not depend on the person's possession of the personal property;
(f) "As-extracted collateral" means:
1. Oil, gas, or other minerals that are subject to a security interest that:
a. Is created by a debtor having an interest in the minerals before extraction; and
b. Attaches to the minerals as extracted; or
2. 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;
(g) Reserved["Authenticate" means: ACTS OF THE GENERAL ASSEMBLY 30
1. To sign; or
2. With present intent to adopt or accept a record, to attach to or logically associate with the record
an electronic sound, symbol, or process];
(h) 1. "Assignee," except as used in "assignee for benefit of creditors," means a person:
a. In whose favor a security interest that secures an obligation is created or provided for
under a security agreement, whether or not the obligation is outstanding; or
b. To which an account, chattel paper, payment intangible, or promissory note has been
sold.
2. The term includes a person to which a security interest has been transferred by a security
party;
(i) 1. "Assignor" means a person that:
a. Under a security agreement, creates or provides for a security interest that secures an
obligation; or
b. Sells an account, chattel paper, payment intangible, or promissory note.
2. The term includes a security party that has transferred a security interest to another person;
(j)[(h)] "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;
(k)[(i)] "Cash proceeds" means proceeds that are money, checks, deposit accounts, or the like;
(l)[(j)] 1. "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.
2. 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;
(m)[(k)] 1. "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:
1. Charters or other contracts involving the use or hire of a vessel; or
2. Records that evidence a right of payment arising out of the use of a credit or charge card or
information contained on or for use with the card.
If a transaction is evidenced by records that include an instrument or series of instruments, the
group of records taken together constitutes chattel paper;]
a. A right to payment of a monetary obligation secured by specific goods, if the right to
payment and security agreement are evidenced by a record; or
b. A right to payment of a monetary obligation owed by a lessee under a lease agreement
with respect to specific goods and a monetary obligation owed by the lessee in
connection with the transaction giving rise to the lease, if:
i. The right to payment and lease agreement are evidenced by a record; and
ii. The predominant purpose of the transaction giving rise to the lease was to give
the lessee the right to possession and use of the goods.
2. The term does not include a right to payment arising out of a charter or other contract
involving the use or hire of a vessel or 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; CHAPTER 10
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(n)[(l)] 1. "Collateral" means the property subject to a security interest or agricultural lien.
2. The term includes:
a.[1.] Proceeds to which a security interest attaches;
b.[2.] Accounts, chattel paper, payment intangibles, and promissory notes that have been sold;
and
c.[3.] Goods that are the subject of a consignment;
(o)[(m)] "Commercial tort claim" means a claim arising in tort with respect to which:
1. The claimant is an organization; or
2. The claimant is an individual and the claim:
a. Arose in the course of the claimant's business or profession; and
b. Does not include damages arising out of personal injury to or the death of an individual;
(p)[(n)] "Commodity account" means an account maintained by a commodity intermediary in which a
commodity contract is carried for a commodity customer;
(q)[(o)] "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:
1. 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
2. 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;
(r)[(p)] "Commodity customer" means a person for which a commodity intermediary carries a
commodity contract on its books;
(s)[(q)] "Commodity intermediary" means a person that:
1. Is registered as a futures commission merchant under federal commodities law; or
2. 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;
(t)[(r)] "Communicate" means:
1. To send a written or other tangible record;
2. To transmit a record by any means agreed upon by the persons sending and receiving the record;
or
3. 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;
(u)[(s)] "Consignee" means a merchant to which goods are delivered in a consignment;
(v)[(t)] "Consignment" means a transaction, regardless of its form, in which a person delivers goods to a
merchant for the purpose of sale and:
1. The merchant:
a. Deals in goods of that kind under a name other than the name of the person making
delivery;
b. Is not an auctioneer; and
c. Is not generally known by its creditors to be substantially engaged in selling the goods of
others;
2. With respect to each delivery, the aggregate value of the goods is one thousand dollars ($1,000)
or more at the time of delivery;
3. The goods are not consumer goods immediately before delivery; and ACTS OF THE GENERAL ASSEMBLY 32
4. The transaction does not create a security interest that secures an obligation;
(w)[(u)] "Consignor" means a person that delivers goods to a consignee in a consignment;
(x)[(v)] "Consumer debtor" means a debtor in a consumer transaction;
(y)[(w)] "Consumer goods" means goods that are used or bought for use primarily for personal, family, or
household purposes;
(z)[(x)] "Consumer-goods transaction" means a consumer transaction in which:
1. An individual incurs an obligation primarily for personal, family, or household purposes; and
2. A security interest in consumer goods secures the obligation;
(aa)[(y)] "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;
(ab)[(z)] 1. "Consumer transaction" means a transaction in which:
a.[1.] An individual incurs an obligation primarily for personal, family, or household purposes;
b.[2.] A security interest secures the obligation; and
c.[3.] The collateral is held or acquired primarily for personal, family, or household purposes.
2. The term includes consumer-goods transactions;
(ac)[(aa)] "Continuation statement" means an amendment of a financing statement which:
1. Identifies, by its file number, the initial financing statement to which it relates; and
2. Indicates that it is a continuation statement for, or that it is filed to continue the effectiveness of,
the identified financing statement;
(ad) "Controllable account" means an account evidenced by a controllable electronic record that
provides that the account debtor undertakes to pay the person that has control under Section 98 of
this Act of the controllable electronic record;
(ae) "Controllable payment intangible" means a payment intangible evidenced by a controllable
electronic record that provides that the account debtor undertakes to pay the person that has control
under Section 98 of this Act of the controllable electronic record;
(af)[(ab)] "Debtor" means:
1. A person having an interest, other than a security interest or other lien, in the collateral, whether
or not the person is an obligor;
2. A seller of accounts, chattel paper, payment intangibles, or promissory notes; or
3. A consignee;
(ag)[(ac)] 1. "Deposit account" means a demand, time, savings, passbook, or similar account
maintained with a bank.
2. The term does not include investment property or accounts evidenced by an instrument;
(ah)[(ad)] "Document" means a document of title or a receipt of the type described in KRS 355.7-201(2);
(ai)[(ae)] Reserved["Electronic chattel paper" means chattel paper evidenced by a record or records
consisting of information stored in an electronic medium];
(aj) "Electronic money" means money in an electronic form;
(ak)[(af)] 1. "Encumbrance" means a right, other than an ownership interest, in real property.
2. The term includes mortgages and other liens on real property;
(al)[(ag)] "Equipment" means goods other than inventory, farm products, or consumer goods;
(am)[(ah)] 1. "Farm products" means goods, other than standing timber, with respect to which the
debtor is engaged in a farming operation and which are:
a.[1.] Crops grown, growing, or to be grown, including: CHAPTER 10
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i.[a.] Crops produced on trees, vines, and bushes; and
ii.[b.] Aquatic goods produced in aquacultural operations;
b.[2.] Livestock, born or unborn, including aquatic goods produced in aquacultural operations;
c.[3.] Supplies used or produced in a farming operation;
d.[4.] Products of crops or livestock in their unmanufactured states; or
e.[5.] Equine interests, including, but not limited to, interests in horses, mares, yearlings, foals,
weanlings, stallions, syndicated stallions, and stallion shares (including seasons and other
rights in connection therewith), whether or not the debtor is engaged in farming operations
and without regard to the use thereof.
2. If goods are farm products, they are neither equipment nor inventory;
(an)[(ai)] "Farming operation" means raising, cultivating, propagating, fattening, grazing, or any other
farming, livestock, or aquacultural operation;
(ao)[(aj)] "File number" means the number assigned to an initial financing statement pursuant to KRS
355.9-519(1);
(ap)[(ak)] "Filing office" means an office designated in KRS 355.9-501 as the place to file a financing
statement;
(aq)[(al)] "Filing-office rule" means a rule adopted pursuant to KRS 355.9-526;
(ar)[(am)] "Financing statement" means a record or records composed of an initial financing statement and
any filed record relating to the initial financing statement;
(as)[(an)] 1. "Fixture filing" means the filing of a financing statement covering goods that are or are to
become fixtures and satisfying KRS 355.9-502(1) and (2).
2. The term includes the filing of a financing statement covering goods of a transmitting utility
which are or are to become fixtures;
(at)[(ao)] "Fixtures" means goods that have become so related to particular real property that an interest in
them arises under real property law;
(au)[(ap)] 1. "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.
2. The term includes:
a. Controllable electronic records;
b. Payment intangibles; and
c. Software;
(av)[(aq)] [(]Reserved[)];
(aw)[(ar)] 1. "Goods" means all things that are movable when a security interest attaches.
2.[1.] The term includes:
a. Fixtures;
b. Standing timber that is to be cut and removed under a conveyance or contract for sale;
c. The unborn young of animals;
d. Crops grown, growing, or to be grown, even if the crops are produced on trees, vines, or
bushes; and
e. Manufactured homes. ACTS OF THE GENERAL ASSEMBLY 34
3.[2.] 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:
a. The program is associated with the goods in such a manner that it customarily is
considered part of the goods; or
b. By becoming the owner of the goods, a person acquires a right to use the program in
connection with the goods.
4.[3.] The term does not include a computer program embedded in goods that consist solely of the
medium in which the program is embedded.
5.[4.] The term also does not include accounts, chattel paper, commercial tort claims, deposit accounts,
documents, general intangibles, instruments, investment property, letter-of-credit rights, letters of
credit, money, or oil, gas, or other minerals before extraction;
(ax)[(as)] 1. "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.
2. 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;
(ay)[(at)] "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 or to be
provided;
(az)[(au)] 1. "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.
2. The term does not include:
a.[1.] Investment property;
b.[2.] Letters of credit;[ or]
c.[3.] 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; or
d. Writings that evidence chattel paper;
(ba)[(av)] "Inventory" means goods, other than farm products, which:
1. Are leased by a person as lessor;
2. Are held by a person for sale or lease or to be furnished under a contract of service;
3. Are furnished by a person under a contract of service; or
4. Consist of raw materials, work in process, or materials used or consumed in a business;
(bb)[(aw)] "Investment property" means a security, whether certificated or uncertificated, security
entitlement, securities account, commodity contract, or commodity account;
(bc)[(ax)] "Jurisdiction of organization," with respect to a registered organization, means the jurisdiction
under whose law the organization is organized;
(bd)[(ay)] 1. "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.
2. The term does not include the right of a beneficiary to demand payment or performance under a
letter of credit;
(be)[(az)] "Lien creditor" means:
1. A creditor that has acquired a lien on the property involved by attachment, levy, or the like;
2. An assignee for benefit of creditors from the time of assignment; CHAPTER 10
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3. A trustee in bankruptcy from the date of the filing of the petition; or
4. A receiver in equity from the time of appointment;
(bf)[(ba)] 1. "Manufactured home" means a structure, transportable in one (1) or more sections, which,
in the traveling mode, is eight (8) body feet or more in width or forty (40) body feet or more in
length, or, when erected on site, is three hundred twenty (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.
2. 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;
(bg)[(bb)] "Manufactured-home transaction" means a secured transaction:
1. That creates a purchase-money security interest in a manufactured home, other than a
manufactured home held as inventory; or
2. In which a manufactured home, other than a manufactured home held as inventory, is the
primary collateral;
(bh) "Money" has the meaning in Section 1 of this Act, but does not include:
1. A deposit account; or
2. Money in an electronic form that cannot be subjected to control under Section 47 of this Act;
(bi)[(bc)] "Mortgage" means a consensual interest in real property, including fixtures, which secures
payment or performance of an obligation;
(bj)[(bd)] "New debtor" means a person that becomes bound as debtor under KRS 355.9-203(4) by a
security agreement previously entered into by another person;
(bk)[(be)] 1. "New value" means:
a.[1.] Money;
b.[2.] Money's worth in property, services, or new credit; or
c.[3.] Release by a transferee of an interest in property previously transferred to the transferee.
2. The term does not include an obligation substituted for another obligation;
(bl)[(bf)] "Noncash proceeds" means proceeds other than cash proceeds;
(bm)[(bg)] 1. "Obligor" means a person that, with respect to an obligation secured by a security interest
in or an agricultural lien on the collateral:
a.[1.] Owes payment or other performance of the obligation;
b.[2.] Has provided property other than the collateral to secure payment or other performance of
the obligation; or
c.[3.] Is otherwise accountable in whole or in part for payment or other performance of the
obligation.
2. The term does not include issuers or nominated persons under a letter of credit;
(bn)[(bh)] "Original debtor," except as used in KRS 355.9-310(3), means a person that, as debtor, entered
into a security agreement to which a new debtor has become bound under KRS 355.9-203(4);
(bo)[(bi)] 1. "Payment intangible" means a general intangible under which the account debtor's
principal obligation is a monetary obligation.
2. The term includes a controllable payment intangible;
(bp)[(bj)] "Person related to," with respect to an individual, means: ACTS OF THE GENERAL ASSEMBLY 36
1. The spouse of the individual;
2. A brother, brother-in-law, sister, or sister-in-law of the individual;
3. An ancestor or lineal descendant of the individual or the individual's spouse; or
4. Any other relative, by blood or marriage, of the individual or the individual's spouse who shares
the same home with the individual;
(bq)[(bk)] "Person related to," with respect to an organization, means:
1. A person directly or indirectly controlling, controlled by, or under common control with the
organization;
2. An officer or director of, or a person performing similar functions with respect to, the
organization;
3. An officer or director of, or a person performing similar functions with respect to, a person
described in subparagraph 1. of this paragraph;
4. The spouse of an individual described in subparagraph 1., 2., or 3. of this paragraph; or
5. An individual who is related by blood or marriage to an individual described in subparagraph 1.,
2., 3., or 4. of this paragraph and shares the same home with the individual;
(br)[(bl)] "Proceeds," except as used in KRS 355.9-609(2), means the following property:
1. Whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral;
2. Whatever is collected on, or distributed on account of, collateral;
3. Rights arising out of collateral;
4. 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
5. 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;
(bs)[(bm)] "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;
(bt)[(bn)] "Proposal" means a record signed[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 KRS 355.9-620, 355.9-621, and 355.9-622;
(bu)[(bo)] "Public-finance transaction" means a secured transaction in connection with which:
1. Debt securities are issued;
2. All or a portion of the securities issued have an initial stated maturity of at least twenty (20)
years; and
3. 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;
(bv)[(bp)] "Public organic record" means a record that is available to the public for inspection and that is:
1. 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 or restates the initial record;
2. 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 or restates the initial record, if a statute of the state
governing business trusts requires that the record be filed with the state; or
3. 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 CHAPTER 10
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any record filed with or issued by the state or United States which amends or restates the name of
the organization;
(bw)[(bq)] "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;
(bx)[(br)] "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;
(by)[(bs)] 1. "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.
2. 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;
(bz)[(bt)] "Secondary obligor" means an obligor to the extent that:
1. The obligor's obligation is secondary; or
2. The obligor has a right of recourse with respect to an obligation secured by collateral against the
debtor, another obligor, or property of either;
(ca)[(bu)] "Secured party" means:
1. 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;
2. A person that holds an agricultural lien;
3. A consignor;
4. A person to which accounts, chattel paper, payment intangibles, or promissory notes have been
sold;
5. 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
6. A person that holds a security interest arising under KRS 355.2-401, 355.2-505, 355.2-711(3),
355.2A-508(5), 355.4-210, or 355.5-118;
(cb)[(bv)] "Security agreement" means an agreement that creates or provides for a security interest;
(cc)[(bw)] Reserved["Send," in connection with a record or notification, means:
1. 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
2. To cause the record or notification to be received within the time that it would have been
received if properly sent under subparagraph 1. of this paragraph];
(cd)[(bx)] "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;
(ce)[(by)] "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;
(cf)[(bz)] "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; ACTS OF THE GENERAL ASSEMBLY 38
(cg)[(ca)] Reserved["Tangible chattel paper" means chattel paper evidenced by a record or records
consisting of information that is inscribed on a tangible medium];
(ch) "Tangible money" means money in a tangible form;
(ci)[(cb)] "Termination statement" means an amendment of a financing statement which:
1. Identifies, by its file number, the initial financing statement to which it relates; and
2. Indicates either that it is a termination statement or that the identified financing statement is no
longer effective; and
(cj)[(cc)] "Transmitting utility" means a person primarily engaged in the business of:
1. Operating a railroad, subway, street railway, or trolley bus;
2. Transmitting communications electrically, electromagnetically, or by light;
3. Transmitting goods by pipeline or sewer; or
4. Transmitting or producing and transmitting electricity, steam, gas, or water.
(2) "Control" as provided in Section 38 of this Act and the following definitions in other articles of this chapter
apply to this article:
(a) "Applicant." KRS 355.5-102;
(b) "Beneficiary." KRS 355.5-102;
(c) "Broker." KRS 355.8-102;
(d) "Certificated security." KRS 355.8-102;
(e) "Check." KRS 355.3-104;
(f) "Clearing corporation." KRS 355.8-102;
(g) "Contract for sale." KRS 355.2-106;
(h) "Controllable electronic record." Section 95 of this Act;
(i) "Customer." KRS 355.4-104;
(j)[(i)] "Entitlement holder." KRS 355.8-102;
(k)[(j)] "Financial asset." KRS 355.8-102;
(l)[(k)] "Holder in due course." KRS 355.3-302;
(m)[(l)] "Issuer." (with respect to a letter of
credit or letter-of-credit right) KRS 355.5-102;
(n)[(m)] "Issuer." (with respect to a security) KRS 355.8-201;
(o)[(n)] "Lease." KRS 355.2A-103;
(p)[(o)] "Lease agreement." KRS 355.2A-103;
(q)[(p)] "Lease contract." KRS 355.2A-103;
(r)[(q)] "Leasehold interest." KRS 355.2A-103;
(s)[(r)] "Lessee." KRS 355.2A-103;
(t)[(s)] "Lessee in ordinary course of business." KRS 355.2A-103;
(u)[(t)] "Lessor." KRS 355.2A-103;
(v)[(u)] "Lessor's residual interest." KRS 355.2A-103;
(w)[(v)] "Letter of credit." KRS 355.5-102;
(x)[(w)] "Merchant." KRS 355.2-104;
(y)[(x)] "Negotiable instrument." KRS 355.3-104; CHAPTER 10
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(z)[(y)] "Nominated person." KRS 355.5-102;
(aa)[(z)] "Note." KRS 355.3-104;
(ab)[(aa)] "Proceeds of a letter of credit." KRS 355.5-114;
(ac) "Protected purchaser." Section 43 of this Act;
(ad)[(ab)] "Prove." KRS 355.3-103;
(ae) "Qualifying purchaser." Section 95 of this Act;
(af)[(ac)] "Sale." KRS 355.2-106;
(ag)[(ad)] "Securities account." KRS 355.8-501;
(ah)[(ae)] "Securities intermediary." KRS 355.8-102;
(ai)[(af)] "Security." KRS 355.8-102;
(aj)[(ag)] "Security certificate." KRS 355.8-102;
(ak)[(ah)] "Security entitlement." KRS 355.8-102; and
(al)[(ai)] "Uncertificated security." KRS 355.8-102.
(3) Article 1 of this chapter contains general definitions and principles of construction and interpretation
applicable throughout this article.
Section 45. KRS 355.9-104 is amended to read as follows:
(1) A secured party has control of a deposit account if:
(a) The secured party is the bank with which the deposit account is maintained;
(b) The debtor, secured party, and bank have agreed in a signed[an authenticated] record that the bank will
comply with instructions originated by the secured party directing disposition of the funds in the deposit
account without further consent by the debtor;[ or]
(c) The secured party becomes the bank's customer with respect to the deposit account; or
(d) Another person, other than the debtor:
1. Has control of the deposit account and acknowledges that it has control on behalf of the
secured party; or
2. Obtains control of the deposit account after having acknowledged that it will obtain control of
the deposit account on behalf of the secured party.
(2) A secured party that has satisfied subsection (1) of this section has control, even if the debtor retains the right
to direct the disposition of funds from the deposit account.
SECTION 46. KRS 355.9-105 IS REPEALED AND REENACTED TO READ AS FOLLOWS:
(1) A purchaser has control of an authoritative electronic copy of a record evidencing chattel paper if a system
employed for evidencing the assignment of interests in the chattel paper reliably establishes the purchaser
as the person to which the authoritative electronic copy was assigned.
(2) A system satisfies subsection (1) of this section if the record or records evidencing the chattel paper are
created, stored, and assigned in a manner that:
(a) A single authoritative copy of the record or records exists which is unique, identifiable, and, except
as otherwise provided in paragraphs (d), (e), and (f) of this subsection, unalterable;
(b) The authoritative copy identifies the purchaser as the assignee of the record or records;
(c) The authoritative copy is communicated to and maintained by the purchaser or its designated
custodian;
(d) Copies or amendments that add or change an identified assignee of the authoritative copy can be
made only with the consent of the purchaser; ACTS OF THE GENERAL ASSEMBLY 40
(e) 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
(f) Any amendment of the authoritative copy is readily identifiable as authorized or unauthorized.
(3) A system satisfies subsection (1) of this section, and a purchaser has control of an authoritative electronic
copy of a record evidencing chattel paper, if the electronic copy, a record attached to or logically associated
with the electronic copy, or a system in which the electronic copy is recorded:
(a) Enables the purchaser to readily identify each electronic copy as either an authoritative copy or a
nonauthoritative copy;
(b) Enables the purchaser to readily identify itself in any way, including by name, identifying number,
cryptographic key, office, or account number, as the assignee of the authoritative electronic copy;
and
(c) Gives the purchaser exclusive power, subject to subsection (4) of this section, to:
1. Prevent others from adding or changing an identified assignee of the authoritative electronic
copy; and
2. Transfer control of the authoritative electronic copy.
(4) Subject to subsection (5) of this section, a power is exclusive under subsection (3)(c)1. and 2. of this section
even if:
(a) The authoritative electronic copy, a record attached to or logically associated with the authoritative
electronic copy, or a system in which the authoritative electronic copy is recorded limits the use of the
authoritative electronic copy or has a protocol programmed to cause a change, including a transfer
or loss of control; or
(b) The power is shared with another person.
(5) A power of a purchaser is not shared with another person under subsection (4)(b) of this section and the
purchaser's power is not exclusive if:
(a) The purchaser can exercise the power only if the power also is exercised by the other person; and
(b) The other person:
1. Can exercise the power without exercise of the power by the purchaser; or
2. Is the transferor to the purchaser of an interest in the chattel paper.
(6) If a purchaser has the powers specified in subsection (3)(c)1. and 2. of this section, the powers are
presumed to be exclusive.
(7) A purchaser has control of an authoritative electronic copy of a record evidencing chattel paper if another
person, other than the transferor to the purchaser of an interest in the chattel paper:
(a) Has control of the authoritative electronic copy and acknowledges that it has control on behalf of the
purchaser; or
(b) Obtains control of the authoritative electronic copy after having acknowledged that it will obtain
control of the electronic copy on behalf of the purchaser.
SECTION 47. A NEW SECTION OF ARTICLE 9 OF KRS CHAPTER 355 IS CREATED TO READ AS
FOLLOWS:
(1) A person has control of electronic money if the electronic money, a record attached to or logically
associated with the electronic money, or a system in which the electronic money is recorded:
(a) Gives the person:
1. Power to avail itself of substantially all the benefit from the electronic money; and
2. Exclusive power, subject to subsection (2) of this section, to:
a. Prevent others from availing themselves of substantially all the benefit from the
electronic money; and CHAPTER 10
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b. Transfer control of the electronic money to another person or cause another person to
obtain control of other electronic money as a result of the transfer of the electronic
money; and
(b) Enables the person to readily identify itself in any way, including by name, identifying number,
cryptographic key, office, or account number, as having the powers under paragraph (a) of this
subsection.
(2) Subject to subsection (3) of this section, a power is exclusive under subsection (1)(a)2.a. and b. of this
section even if:
(a) The electronic money, a record attached to or logically associated with the electronic money, or a
system in which the electronic money is recorded limits the use of the electronic money or has a
protocol programmed to cause a change, including a transfer or loss of control; or
(b) The power is shared with another person.
(3) A power of a person is not shared with another person under subsection (2)(b) of this section and the
person's power is not exclusive if:
(a) The person can exercise the power only if the power also is exercised by the other person; and
(b) The other person:
1. Can exercise the power without exercise of the power by the person; or
2. Is the transferor to the person of an interest in the electronic money.
(4) If a person has the powers specified in subsection (1)(a)2.a. and b. of this section, the powers are presumed
to be exclusive.
(5) A person has control of electronic money if another person, other than the transferor to the person of an
interest in the electronic money:
(a) Has control of the electronic money and acknowledges that it has control on behalf of the person; or
(b) Obtains control of the electronic money after having acknowledged that it will obtain control of the
electronic money on behalf of the person.
SECTION 48. A NEW SECTION OF ARTICLE 9 OF KRS CHAPTER 355 IS CREATED TO READ AS
FOLLOWS:
(1) A secured party has control of a controllable electronic record as provided in Section 98 of this Act.
(2) A secured party has control of a controllable account or controllable payment intangible if the secured
party has control of the controllable electronic record that evidences the controllable account or
controllable payment intangible.
SECTION 49. A NEW SECTION OF ARTICLE 9 OF KRS CHAPTER 355 IS CREATED TO READ AS
FOLLOWS:
(1) A person that has control under Section 45, 46, or 47 of this Act is not required to acknowledge that it has
control on behalf of another person.
(2) If a person acknowledges that it has or will obtain control on behalf of another person, unless the person
otherwise agrees or law other than this article otherwise provides, the person does not owe any duty to the
other person and is not required to confirm the acknowledgment to any other person.
Section 50. KRS 355.9-203 is amended to read as follows:
(1) 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.
(2) Except as otherwise provided in subsections (3) to (9) of this section, a security interest is enforceable against
the debtor and third parties with respect to the collateral only if:
(a) Value has been given;
(b) The debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party;
and ACTS OF THE GENERAL ASSEMBLY 42
(c) One (1) of the following conditions is met:
1. The debtor has signed[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;
2. The collateral is not a certificated security and is in the possession of the secured party under
KRS 355.9-313 pursuant to the debtor's security agreement;
3. The collateral is a certificated security in registered form and the security certificate has been
delivered to the secured party under KRS 355.8-301 pursuant to the debtor's security agreement;[
or]
4. The collateral is controllable accounts, controllable electronic records, controllable payment
intangibles, deposit accounts, electronic documents[chattel paper], electronic money,
investment property, or letter-of-credit rights,[ or electronic documents,] and the secured party
has control under KRS 355.7-106, 355.9-104, [355.9-105,] Section 47 of this Act, 355.9-106,[
or] 355.9-107, or Section 48 of this Act pursuant to the debtor's security agreement; or
5. The collateral is chattel paper and the secured party has possession and control under Section
65 of this Act pursuant to the debtor's security agreement.
(3) Subsection (2) of this section is subject to KRS 355.4-210 on the security interest of a collecting bank, KRS
355.5-118 on the security interest of a letter-of-credit issuer or nominated person, KRS 355.9-110 on a security
interest arising under Article 2 or 2A of this chapter, and KRS 355.9-206 on security interests in investment
property.
(4) 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:
(a) The security agreement becomes effective to create a security interest in the person's property; or
(b) 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.
(5) If a new debtor becomes bound as debtor by a security agreement entered into by another person:
(a) The agreement satisfies subsection (2)(c) of this section with respect to existing or after-acquired
property of the new debtor to the extent the property is described in the agreement; and
(b) Another agreement is not necessary to make a security interest in the property enforceable.
(6) The attachment of a security interest in collateral gives the secured party the rights to proceeds provided by
KRS 355.9-315 and is also attachment of a security interest in a supporting obligation for the collateral.
(7) 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.
(8) 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.
(9) 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.
Section 51. KRS 355.9-204 is amended to read as follows:
(1) Except as otherwise provided in subsection (2) of this section, a security agreement may create or provide for a
security interest in after-acquired collateral.
(2) (a) Subject to paragraph (b) of this subsection, a security interest does not attach under a term constituting
an after-acquired property clause to:
1.[(a)] Consumer goods, other than an accession when given as additional security, unless the debtor
acquires rights in them within ten (10) days after the secured party gives value; or
2.[(b)] A commercial tort claim.
(b) Paragraph (a) of this subsection does not prevent a security interest from attaching: CHAPTER 10
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1. To consumer goods as proceeds under KRS 355.9-315(1) or commingled goods under KRS
355.9-336(3);
2. To a commercial tort claim as proceeds under KRS 355.9-315(1); or
3. Under an after-acquired property clause to property that is proceeds of consumer goods or a
commercial tort claim.
(3) 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.
Section 52. KRS 355.9-207 is amended to read as follows:
(1) Except as otherwise provided in subsection (4) of this section:[,]
(a) A secured party shall use reasonable care in the custody and preservation of collateral in the secured
party's possession; and[.]
(b) In the case of chattel paper or an instrument, reasonable care includes taking necessary steps to preserve
rights against prior parties unless otherwise agreed.
(2) Except as otherwise provided in subsection (4) of this section, if a secured party has possession of collateral:
(a) 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;
(b) The risk of accidental loss or damage is on the debtor to the extent of a deficiency in any effective
insurance coverage;
(c) The secured party shall keep the collateral identifiable, but fungible collateral may be commingled; and
(d) The secured party may use or operate the collateral:
1. For the purpose of preserving the collateral or its value;
2. As permitted by an order of a court having competent jurisdiction; or
3. Except in the case of consumer goods, in the manner and to the extent agreed by the debtor.
(3) Except as otherwise provided in subsection (4) of this section, a secured party having possession of collateral
or control of collateral under KRS 355.7-106, 355.9-104, 355.9-105, Section 47 of this Act, 355.9-106,[ or]
355.9-107, or Section 48 of this Act:
(a) May hold as additional security any proceeds, except money or funds, received from the collateral;
(b) Shall apply money or funds received from the collateral to reduce the secured obligation, unless
remitted to the debtor; and
(c) May create a security interest in the collateral.
(4) If the secured party is a buyer of accounts, chattel paper, payment intangibles, or promissory notes or a
consignor:
(a) Subsection (1) of this section does not apply unless the secured party is entitled under an agreement:
1. To charge back uncollected collateral; or
2. 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
(b) Subsections (2) and (3) of this section do not apply.
Section 53. KRS 355.9-208 is amended to read as follows:
(1) This section applies to cases in which:
(a) There is no outstanding secured obligation; and
(b) The secured party is not committed to make advances, incur obligations, or otherwise give value. ACTS OF THE GENERAL ASSEMBLY 44
(2) Within ten (10) days after receiving a signed[an authenticated] demand by the debtor:
(a) A secured party having control of a deposit account under KRS 355.9-104(1)(b) shall send to the bank
with which the deposit account is maintained a signed record[an authenticated statement] that releases
the bank from any further obligation to comply with instructions originated by the secured party;
(b) A secured party having control of a deposit account under KRS 355.9-104(1)(c) shall:
1. Pay the debtor the balance on deposit in the deposit account; or
2. Transfer the balance on deposit into a deposit account in the debtor's name;
(c) A secured party, other than a buyer, having control[ of electronic chattel paper] under KRS 355.9-105
of an authoritative electronic copy of a record evidencing chattel paper shall transfer control of the
electronic copy to the debtor or a person designated by the debtor[:
1. Communicate the authoritative copy of the electronic chattel paper to the debtor or its designated
custodian;
2. 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
3. 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];
(d) A secured party having control of investment property under KRS 355.8-106(4)(b) or 355.9-106(2)
shall send to the securities intermediary or commodity intermediary with which the security entitlement
or commodity contract is maintained a signed[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;
(e) A secured party having control of a letter-of-credit right under KRS 355.9-107 shall send to each person
having an unfulfilled obligation to pay or deliver proceeds of the letter of credit to the secured party a
signed[an authenticated] release from any further obligation to pay or deliver proceeds of the letter of
credit to the secured party;[ and]
(f) A secured party having control under Section 38 of this Act of an authoritative electronic copy of an
electronic document shall transfer control of the electronic copy to the debtor or a person designated
by the debtor;[:
1. Give control of the electronic document to the debtor or its designated custodian;
2. 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
3. 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]
(g) A secured party having control under Section 47 of this Act of electronic money shall transfer
control of the electronic copy to the debtor or a person designated by the debtor; and
(h) A secured party having control under Section 98 of this Act of a controllable electronic record, other
than a buyer of a controllable account or controllable payment intangible evidenced by the
controllable electronic record, shall transfer control of the controllable electronic record to the
debtor or a person designated by the debtor.
Section 54. KRS 355.9-209 is amended to read as follows:
(1) Except as otherwise provided in subsection (3) of this section, this section applies if: CHAPTER 10
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(a) There is no outstanding secured obligation; and
(b) The secured party is not committed to make advances, incur obligations, or otherwise give value.
(2) Within ten (10) days after receiving a signed[an authenticated] demand by the debtor, a secured party shall
send to an account debtor that has received notification under subsection (1) of Section 77 of this Act or
subsection (2) of Section 99 of this Act of an assignment to the secured party as assignee a signed[under KRS
355.9-406(1) an authenticated] record that releases the account debtor from any further obligation to the
secured party.
(3) This section does not apply to an assignment constituting the sale of an account, chattel paper, or payment
intangible.
Section 55. KRS 355.9-210 is amended to read as follows:
(1) In this section:
(a) "Request" means a record of a type described in paragraph (b), (c), or (d) of this subsection.
(b) "Request for an accounting" means a record signed[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.
(c) "Request regarding a list of collateral" means a record signed[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.
(d) "Request regarding a statement of account" means a record signed[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.
(2) Subject to subsections (3), (4), (5), and (6) of this section, 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
fourteen (14) days after receipt:
(a) In the case of a request for an accounting, by signing[authenticating] and sending to the debtor an
accounting; and
(b) In the case of a request regarding a list of collateral or a request regarding a statement of account, by
signing[authenticating] and sending to the debtor an approval or correction.
(3) 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 a signed[an authenticated] record
including a statement to that effect within fourteen (14) days after receipt.
(4) 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 fourteen (14) days after receipt by sending to the debtor a signed[an authenticated] record:
(a) Disclaiming any interest in the collateral; and
(b) 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.
(5) 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 fourteen (14) days after receipt by sending to the debtor a signed[an
authenticated] record:
(a) Disclaiming any interest in the obligations; and
(b) 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.
(6) (a) A debtor is entitled without charge to one (1) response to a request under this section during any six (6)
month period. ACTS OF THE GENERAL ASSEMBLY 46
(b) The secured party may require payment of a charge not exceeding twenty-five dollars ($25) for each
additional response.
Section 56. KRS 355.9-301 is amended to read as follows:
Except as otherwise provided in KRS 355.9-303 to Section 60 of this Act[355.9-306], 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 subsection (4) of this section, while negotiable tangible[ negotiable]
documents, goods, instruments, or tangible 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; and[.]
(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.
Section 57. KRS 355.9-304 is amended to read as follows:
(1) 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 even if the transaction does not
bear any relation to the bank's jurisdiction.
(2) The following rules determine a bank's jurisdiction for purposes of this part of this article:
(a) If an agreement between the bank and its customer governing the deposit account expressly provides
that a particular jurisdiction is the bank's jurisdiction for purposes of this part of this article, this article,
or this chapter, that jurisdiction is the bank's jurisdiction;[.]
(b) If paragraph (a) of this subsection 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;[.]
(c) If neither paragraph (a) nor (b) of this subsection 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;[.]
(d) 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; and[.]
(e) 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.
Section 58. KRS 355.9-305 is amended to read as follows:
(1) Except as otherwise provided in subsection (3) of this section, the following rules apply:
(a) 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;[.]
(b) The local law of the issuer's jurisdiction as specified in KRS 355.8-110(4) governs perfection, the effect
of perfection or nonperfection, and the priority of a security interest in an uncertificated security;[.]
(c) The local law of the securities intermediary's jurisdiction as specified in KRS 355.8-110(5) governs
perfection, the effect of perfection or nonperfection, and the priority of a security interest in a security
entitlement or securities account;[.] CHAPTER 10
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(d) 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;
and
(e) Paragraphs (b), (c), and (d) of this subsection apply even if the transaction does not bear any relation
to the jurisdiction.
(2) The following rules determine a commodity intermediary's jurisdiction for purposes of this part of this article:
(a) 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 of this article, this article, or this chapter, that jurisdiction is the
commodity intermediary's jurisdiction;[.]
(b) If paragraph (a) of this subsection 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;[.]
(c) If neither paragraph (a) nor paragraph (b) of this subsection 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;[.]
(d) 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; and[.]
(e) 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.
(3) The local law of the jurisdiction in which the debtor is located governs:
(a) Perfection of a security interest in investment property by filing;
(b) Automatic perfection of a security interest in investment property created by a broker or securities
intermediary; and
(c) Automatic perfection of a security interest in a commodity contract or commodity account created by a
commodity intermediary.
SECTION 59. A NEW SECTION OF ARTICLE 9 OF KRS CHAPTER 355 IS CREATED TO READ AS
FOLLOWS:
(1) Except as provided in subsection (4) of this section, if chattel paper is evidenced only by an authoritative
electronic copy of the chattel paper or is evidenced by an authoritative electronic copy and an authoritative
tangible copy, the local law of the chattel paper's jurisdiction governs perfection, the effect of perfection or
nonperfection, and the priority of a security interest in the chattel paper, even if the transaction does not
bear any relation to the chattel paper's jurisdiction.
(2) The following rules determine the chattel paper's jurisdiction under this section:
(a) If the authoritative electronic copy of the record evidencing chattel paper, or a record attached to or
logically associated with the electronic copy and readily available for review, expressly provides that
a particular jurisdiction is the chattel paper's jurisdiction for purposes of this part, this article, or this
chapter, that jurisdiction is the chattel paper's jurisdiction;
(b) If paragraph (a) of this subsection does not apply and the rules of the system in which the
authoritative electronic copy is recorded are readily available for review and expressly provide that a
particular jurisdiction is the chattel paper's jurisdiction for purposes of this part, this article, or this
chapter, that jurisdiction is the chattel paper's jurisdiction;
(c) If paragraphs (a) and (b) of this subsection do not apply and the authoritative electronic copy, or a
record attached to or logically associated with the electronic copy and readily available for review,
expressly provides that the chattel paper is governed by the law of a particular jurisdiction, that
jurisdiction is the chattel paper's jurisdiction; ACTS OF THE GENERAL ASSEMBLY 48
(d) If paragraphs (a), (b), and (c) of this subsection do not apply and the rules of the system in which the
authoritative electronic copy is recorded are readily available for review and expressly provide that
the chattel paper or the system is governed by the law of a particular jurisdiction, that jurisdiction is
the chattel paper's jurisdiction; and
(e) If paragraphs (a) to (d) of this subsection do not apply, the chattel paper's jurisdiction is the
jurisdiction in which the debtor is located.
(3) If an authoritative tangible copy of a record evidences chattel paper and the chattel paper is not evidenced
by an authoritative electronic copy, while the authoritative tangible copy of the record evidencing chattel
paper is located in a jurisdiction, the local law of that jurisdiction governs:
(a) Perfection of a security interest in the chattel paper by possession under Section 65 of this Act; and
(b) The effect of perfection or nonperfection and the priority of a security interest in the chattel paper.
(4) The local law of the jurisdiction in which the debtor is located governs perfection of a security interest in
chattel paper by filing.
SECTION 60. A NEW SECTION OF ARTICLE 9 OF KRS CHAPTER 355 IS CREATED TO READ AS
FOLLOWS:
(1) Except as provided in subsection (2) of this section, the local law of the controllable electronic record's
jurisdiction specified in subsections (3) and (4) of Section 100 of this Act governs perfection, the effect of
perfection or nonperfection, and the priority of a security interest in a controllable electronic record and a
security interest in a controllable account or controllable payment intangible evidenced by the controllable
electronic record.
(2) The local law of the jurisdiction in which the debtor is located governs:
(a) Perfection of a security interest in a controllable account, controllable electronic record, or
controllable payment intangible by filing; and
(b) Automatic perfection of a security interest in a controllable payment intangible created by a sale of
the controllable payment intangible.
Section 61. KRS 355.9-310 is amended to read as follows:
(1) Except as otherwise provided in subsection (2) of this section and KRS 355.9-312(2), a financing statement
must be filed to perfect all security interests and agricultural liens.
(2) The filing of a financing statement is not necessary to perfect a security interest:
(a) That is perfected under KRS 355.9-308(4), (5), (6), or (7);
(b) That is perfected under KRS 355.9-309 when it attaches;
(c) In property subject to a statute, regulation, or treaty described in KRS 355.9-311(1);
(d) In goods in possession of a bailee which is perfected under KRS 355.9-312(4)(a) or (b);
(e) In certificated securities, documents, goods, or instruments which is perfected without filing, control, or
possession under KRS 355.9-312(5), (6), or (7);
(f) In collateral in the secured party's possession under KRS 355.9-313;
(g) In a certificated security which is perfected by delivery of the security certificate to the secured party
under KRS 355.9-313;
(h) In controllable accounts, controllable electronic records, controllable payment intangibles, deposit
accounts,[ electronic chattel paper,] electronic documents, investment property, or letter-of-credit rights
which is perfected by control under KRS 355.9-314;
(i) In proceeds which is perfected under KRS 355.9-315;[ or]
(j) That is perfected under KRS 355.9-316; or
(k) In chattel paper which is perfected by possession and control under Section 65 of this Act. CHAPTER 10
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(3) 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.
Section 62. KRS 355.9-312 is amended to read as follows:
(1) A security interest in chattel paper, controllable accounts, controllable electronic records, controllable
payment intangibles[negotiable documents], instruments,[ or] investment property, or negotiable documents
may be perfected by filing.
(2) Except as otherwise provided in KRS 355.9-315(3) and (4) for proceeds:
(a) A security interest in a deposit account may be perfected only by control under KRS 355.9-314;
(b) And except as otherwise provided in KRS 355.9-308(4), a security interest in a letter-of-credit right
may be perfected only by control under KRS 355.9-314;[ and]
(c) A security interest in tangible money may be perfected only by the secured party's taking possession
under KRS 355.9-313; and
(d) A security interest in electronic money may be perfected only by control under Section 64 of this Act.
(3) While goods are in the possession of a bailee that has issued a negotiable document covering the goods:
(a) A security interest in the goods may be perfected by perfecting a security interest in the document; and
(b) 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.
(4) 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:
(a) Issuance of a document in the name of the secured party;
(b) The bailee's receipt of notification of the secured party's interest; or
(c) Filing as to the goods.
(5) 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 twenty (20) days from the time it attaches to the extent that it
arises for new value given under a signed[an authenticated] security agreement.
(6) 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 twenty (20) days without filing if the
secured party makes available to the debtor the goods or documents representing the goods for the purpose of:
(a) Ultimate sale or exchange; or
(b) Loading, unloading, storing, shipping, transshipping, manufacturing, processing, or otherwise dealing
with them in a manner preliminary to their sale or exchange.
(7) A perfected security interest in a certificated security or instrument remains perfected for twenty (20) days
without filing if the secured party delivers the security certificate or instrument to the debtor for the purpose
of:
(a) Ultimate sale or exchange; or
(b) Presentation, collection, enforcement, renewal, or registration of transfer.
(8) After the twenty (20) day period specified in subsection (5), (6), or (7) of this section expires, perfection
depends upon compliance with this article.
Section 63. KRS 355.9-313 is amended to read as follows:
(1) (a) Except as otherwise provided in subsection (2) of this section, a secured party may perfect a security
interest in[ tangible negotiable documents,] goods, instruments, negotiable tangible documents, or
tangible money[, or tangible chattel paper] by taking possession of the collateral.
(b) A secured party may perfect a security interest in certificated securities by taking delivery of the
certificated securities under KRS 355.8-301. ACTS OF THE GENERAL ASSEMBLY 50
(2) With respect to goods covered by a certificate of title issued by this Commonwealth, a secured party may
perfect a security interest in the goods by taking possession of the goods only in the circumstances described in
KRS 355.9-316(4).
(3) 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:
(a) The person in possession signs[authenticates] a record acknowledging that it holds possession of the
collateral for the secured party's benefit; or
(b) The person takes possession of the collateral after having signed[authenticated] a record acknowledging
that it will hold possession of the collateral for the secured party's benefit.
(4) If perfection of a security interest depends upon possession of the collateral by a secured party, perfection
occurs not[no] earlier than the time the secured party takes possession and continues only while the secured
party retains possession.
(5) A security interest in a certificated security in registered form is perfected by delivery when delivery of the
certificated security occurs under KRS 355.8-301 and remains perfected by delivery until the debtor obtains
possession of the security certificate.
(6) A person in possession of collateral is not required to acknowledge that it holds possession for a secured
party's benefit.
(7) If a person acknowledges that it holds possession for the secured party's benefit:
(a) The acknowledgment is effective under subsection (3) of this section or KRS 355.8-301(1), even if the
acknowledgment violates the rights of a debtor; and
(b) 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.
(8) 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:
(a) To hold possession of the collateral for the secured party's benefit; or
(b) To redeliver the collateral to the secured party.
(9) (a) A secured party does not relinquish possession, even if a delivery under subsection (8) of this section
violates the rights of a debtor.
(b) A person to which collateral is delivered under subsection (8) of this section 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.
Section 64. KRS 355.9-314 is amended to read as follows:
(1) A security interest in controllable accounts, controllable electronic records, controllable payment
intangibles, deposit accounts, electronic documents, electronic money, investment property,[ deposit
accounts,] or letter-of-credit rights[, electronic chattel paper, or electronic documents] may be perfected by
control of the collateral under KRS 355.7-106, 355.9-104,[ 355.9-105,] Section 47 of this Act, 355.9-106,[ or]
355.9-107, or Section 48 of this Act.
(2) A security interest in controllable accounts, controllable electronic records, controllable payment
intangibles, deposit accounts, electronic documents, electronic money[chattel paper], or letter-of-credit
rights[, or electronic documents] is perfected by control under KRS 355.7-106, 355.9-104, [355.9-105,]
Section 47 of this Act,[ or] 355.9-107, or Section 48 of this Act not earlier than the time[ when] the secured
party obtains control and remains perfected by control only while the secured party retains control.
(3) A security interest in investment property is perfected by control under KRS 355.9-106 not earlier than[from]
the time the secured party obtains control and remains perfected by control until:
(a) The secured party does not have control; and
(b) One (1) of the following occurs: CHAPTER 10
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1. If the collateral is a certificated security, the debtor has or acquires possession of the security
certificate;
2. If the collateral is an uncertificated security, the issuer has registered or registers the debtor as the
registered owner; or
3. If the collateral is a security entitlement, the debtor is or becomes the entitlement holder.
SECTION 65. A NEW SECTION OF ARTICLE 9 OF KRS CHAPTER 355 IS CREATED TO READ AS
FOLLOWS:
(1) A secured party may perfect a security interest in chattel paper by taking possession of each authoritative
tangible copy of the record evidencing the chattel paper and obtaining control of each authoritative
electronic copy of the electronic record evidencing the chattel paper.
(2) A security interest is perfected under subsection (1) of this section not earlier than the time the secured
party takes possession and obtains control and remains perfected under subsection (1) of this section only
while the secured party retains possession and control.
(3) Subsections (3) and (6) to (9) of Section 63 of this Act apply to perfection by possession of an authoritative
tangible copy of a record evidencing chattel paper.
Section 66. KRS 355.9-316 is amended to read as follows:
(1) A security interest perfected pursuant to the law of the jurisdiction designated in KRS 355.9-301(1),[ or]
355.9-305(3), subsection (4) of Section 59 of this Act, or subsection (2) of Section 60 of this Act remains
perfected until the earliest of:
(a) The time perfection would have ceased under the law of that jurisdiction;
(b) The expiration of four (4) months after a change of the debtor's location to another jurisdiction; or
(c) The expiration of one (1) year after a transfer of collateral to a person that thereby becomes a debtor and
is located in another jurisdiction.
(2) If a security interest described in subsection (1) of this section 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.
(3) 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:
(a) The collateral is located in one jurisdiction and subject to a security interest perfected under the law of
that jurisdiction;
(b) Thereafter the collateral is brought into another jurisdiction; and
(c) Upon entry into the other jurisdiction, the security interest is perfected under the law of the other
jurisdiction.
(4) Except as otherwise provided in subsection (5) of this section, 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 by a certificate of title from this Commonwealth remains perfected until the security interest
would have become unperfected under the law of the other jurisdiction had the goods not become so covered.
(5) A security interest described in subsection (4) of this section 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 KRS 355.9-311(2) or 355.9-313 are not satisfied before the
earlier of:
(a) 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 Commonwealth; or
(b) The expiration of four (4) months after the goods had become so covered. ACTS OF THE GENERAL ASSEMBLY 52
(6) A security interest in chattel paper, controllable accounts, controllable electronic records, controllable
payment intangibles, deposit accounts, letter-of-credit rights, or investment property which is perfected under
the law of the chattel paper's jurisdiction, the controllable electronic record's jurisdiction, 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:
(a) The time the security interest would have become unperfected under the law of that jurisdiction; or
(b) The expiration of four (4) months after a change of the applicable jurisdiction to another jurisdiction.
(7) If a security interest described in subsection (6) of this section 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.
(8) The following rules apply to collateral to which a security interest attaches within four (4) months after the
debtor changes its location to another jurisdiction:
(a) A financing statement filed before the change pursuant to the law of the jurisdiction designated in KRS
355.9-301(1) or 355.9-305(3) 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 if the debtor had not
changed its location; and
(b) If a security interest that is perfected by a financing statement that is effective under paragraph (a) of
this subsection 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
KRS 355.9-301(1) or 355.9-305(3) or the expiration of the four (4) 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.
(9) If a financing statement naming an original debtor is filed pursuant to the law of the jurisdiction designated in
KRS 355.9-301(1) or 355.9-305(3) and the new debtor is located in another jurisdiction, the following rules
apply:
(a) The financing statement is effective to perfect a security interest in collateral in which the new debtor
has or acquires rights before or within four (4) months after the new debtor becomes bound under KRS
355.9-203(4), if the financing statement would have been effective to perfect a security interest in the
collateral if the collateral had been acquired by the original debtor; and
(b) A security interest that is perfected by the financing statement and which becomes perfected under the
law of the other jurisdiction before the earlier of the expiration of the four (4) month period or the time
the financing statement would have become ineffective under the law of the jurisdiction designated in
KRS 355.9-301(1) or 355.9-305(3) 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.
Section 67. KRS 355.9-317 is amended to read as follows:
(1) A security interest or agricultural lien is subordinate to the rights of:
(a) A person entitled to priority under KRS 355.9-322; and
(b) Except as otherwise provided in subsection (5) of this section, a person that becomes a lien creditor
before the earlier of the time:
1. The security interest or agricultural lien is perfected; or
2. One (1) of the conditions specified in KRS 355.9-203(2)(c) is met and a financing statement
covering the collateral is filed.
(2) Except as otherwise provided in subsection (5) of this section, a buyer, other than a secured party, of[ tangible
chattel paper, documents,] goods, instruments, tangible documents, 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. CHAPTER 10
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(3) Except as otherwise provided in subsection (5) of this section, 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.
(4) Subject to subsections (6) to (9) of this section, a licensee of a general intangible or a buyer, other than a
secured party, of collateral other than electronic money,[tangible chattel paper, tangible documents,] goods,
instruments, tangible documents, 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.
(5) Except as otherwise provided in KRS 355.9-320 and 355.9-321, if a person files a financing statement with
respect to a purchase-money security interest before or within twenty (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.
(6) A buyer, other than a secured party, of chattel paper takes free of a security interest if, without knowledge
of the security interest and before it is perfected, the buyer gives value and:
(a) Receives delivery of each authoritative tangible copy of the record evidencing the chattel paper; and
(b) If each authoritative electronic copy of the record evidencing chattel paper can be subjected to
control under Section 46 of this Act, obtains control of each authoritative electronic copy.
(7) A buyer of an electronic document takes free of a security interest if, without knowledge of the security
interest and before it is perfected, the buyer gives value and, if each authoritative electronic copy of the
document can be subjected to control under Section 38 of this Act, obtains control of each authoritative
electronic copy.
(8) A buyer of a controllable electronic record takes free of a security interest if, without knowledge of the
security interest and before it is perfected, the buyer gives value and obtains control of the controllable
electronic record.
(9) A buyer, other than a secured party, of a controllable account or a controllable payment intangible takes
free of a security interest if, without knowledge of the security interest and before it is perfected, the buyer
gives value and obtains control of the controllable account or controllable payment intangible.
Section 68. KRS 355.9-323 is amended to read as follows:
(1) Except as otherwise provided in subsection (3) of this section, for purposes of determining the priority of a
perfected security interest under KRS 355.9-322(1)(a), perfection of the security interest dates from the time
an advance is made to the extent that the security interest secures an advance that:
(a) Is made while the security interest is perfected only:
1. Under KRS 355.9-309 when it attaches; or
2. Temporarily under KRS 355.9-312(5), (6), or (7); and
(b) Is not made pursuant to a commitment entered into before or while the security interest is perfected by a
method other than under KRS 355.9-309 or 355.9-312(5), (6), or (7).
(2) Except as otherwise provided in subsection (3) of this section, 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
forty-five (45) days after the person becomes a lien creditor unless the advance is made:
(a) Without knowledge of the lien; or
(b) Pursuant to a commitment entered into without knowledge of the lien.
(3) Subsections (1) and (2) of this section 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.
(4) Except as otherwise provided in subsection (5) of this section, 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:
(a) The time the secured party acquires knowledge of the buyer's purchase; or
(b) Forty-five (45) days after the purchase. ACTS OF THE GENERAL ASSEMBLY 54
(5) Subsection (4) of this section 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 forty-five (45) day period.
(6) Except as otherwise provided in subsection (7) of this section, 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:
(a) The time the secured party acquires knowledge of the lease; or
(b) Forty-five (45) days after the lease contract becomes enforceable.
(7) Subsection (6) of this section 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 forty-five (45) day period.
Section 69. KRS 355.9-324 is amended to read as follows:
(1) Except as otherwise provided in subsection (7) of this section, a perfected purchase-money security interest in
goods other than inventory or livestock has priority over a conflicting security interest in the same goods, and,
except as otherwise provided in KRS 355.9-327, 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 twenty (20) days thereafter.
(2) Subject to subsection (3) of this section and except as otherwise provided in subsection (7) of this section, 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 KRS 355.9-330, and, except as
otherwise provided in KRS 355.9-327, 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:
(a) The purchase-money security interest is perfected when the debtor receives possession of the inventory;
(b) The purchase-money secured party sends a signed[an authenticated] notification to the holder of the
conflicting security interest;
(c) The holder of the conflicting security interest receives the notification within five (5) years before the
debtor receives possession of the inventory; and
(d) 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.
(3) Subsection (2)(b) to (d) of this section apply only if the holder of the conflicting security interest had filed a
financing statement covering the same types of inventory:
(a) If the purchase-money security interest is perfected by filing, before the date of the filing; or
(b) If the purchase-money security interest is temporarily perfected without filing or possession under KRS
355.9-312(6), before the beginning of the twenty (20) day period thereunder.
(4) Subject to subsection (5) of this section and except as otherwise provided in subsection (7) of this section, 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 KRS 355.9-327, a perfected
security interest in their identifiable proceeds and identifiable products in their unmanufactured states also has
priority, if:
(a) The purchase-money security interest is perfected when the debtor receives possession of the livestock;
(b) The purchase-money secured party sends a signed[an authenticated] notification to the holder of the
conflicting security interest;
(c) The holder of the conflicting security interest receives the notification within six (6) months before the
debtor receives possession of the livestock; and
(d) 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.
(5) Subsection (4)(b) to (d) of this section apply only if the holder of the conflicting security interest had filed a
financing statement covering the same types of livestock:
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(b) If the purchase-money security interest is temporarily perfected without filing or possession under KRS
355.9-312(6), before the beginning of the twenty (20) day period thereunder.
(6) Except as otherwise provided in subsection (7) of this section, 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 KRS 355.9-327, 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.
(7) If more than one (1) security interest qualifies for priority in the same collateral under subsection (1), (2), (4),
or (6) of this section:
(a) 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
(b) In all other cases, KRS 355.9-322(1) applies to the qualifying security interests.
SECTION 70. A NEW SECTION OF ARTICLE 9 OF KRS CHAPTER 355 IS CREATED TO READ AS
FOLLOWS:
A security interest in a controllable account, controllable electronic record, or controllable payment intangible
held by a secured party having control of the account, electronic record, or payment intangible has priority over a
conflicting security interest held by a secured party that does not have control.
Section 71. KRS 355.9-330 is amended to read as follows:
(1) 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:
(a) In good faith and in the ordinary course of the purchaser's business, the purchaser gives new value,[
and] takes possession of each authoritative tangible copy of the record evidencing the chattel paper,
and[ or] obtains control under Section 46 of this Act of each authoritative electronic copy of the
record evidencing[of] the chattel paper[ under KRS 355.9-105]; and
(b) The authoritative copies of the record evidencing the chattel paper do[does] not indicate that the
chattel paper[it] has been assigned to an identified assignee other than the purchaser.
(2) 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 each authoritative tangible copy of the record evidencing the chattel paper, and[ or] obtains
control under Section 46 of this Act of each authoritative electronic copy of the record evidencing[of] the
chattel paper[ under KRS 355.9-105] 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.
(3) Except as otherwise provided in KRS 355.9-327, a purchaser having priority in chattel paper under subsection
(1) or (2) of this section also has priority in proceeds of the chattel paper to the extent that:
(a) KRS 355.9-322 provides for priority in the proceeds; or
(b) 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.
(4) Except as otherwise provided in KRS 355.9-331(1), 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.
(5) For purposes of subsections (1) and (2) of this section, the holder of a purchase-money security interest in
inventory gives new value for chattel paper constituting proceeds of the inventory.
(6) For purposes of subsections (2) and (4) of this section, if the authoritative copies of the record evidencing
chattel paper or an instrument indicate[indicates] that the chattel paper or instrument[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.
Section 72. KRS 355.9-331 is amended to read as follows: ACTS OF THE GENERAL ASSEMBLY 56
(1) 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, or a qualifying
purchaser of a controllable account, controllable electronic record, or controllable payment intangible.
These holders or purchasers take priority over an earlier security interest, even if perfected, to the extent
provided in Articles 3, 7, 8, and 12[8] of this chapter.
(2) 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 a claim under Article 8 or 12 of this chapter.
(3) Filing under this article does not constitute notice of a claim or defense to the holders, or purchasers, or
persons described in subsections (1) and (2) of this section.
Section 73. KRS 355.9-332 is amended to read as follows:
(1) A transferee of tangible money takes the money free of a security interest if the transferee receives possession
of the money without acting[unless the transferee acts] in collusion with the debtor in violating the rights of
the secured party.
(2) A transferee of funds from a deposit account takes the funds free of a security interest in the deposit account if
the transferee receives the funds without acting[unless the transferee acts] in collusion with the debtor in
violating the rights of the secured party.
(3) A transferee of electronic money takes the money free of a security interest if the transferee obtains control
of the money without acting in collusion with the debtor in violating the rights of the secured party.
Section 74. KRS 355.9-334 is amended to read as follows:
(1) (a) A security interest under this article may be created in goods that are fixtures or may continue in goods
that become fixtures.
(b) A security interest does not exist under this article in ordinary building materials incorporated into an
improvement on land.
(2) This article does not prevent creation of an encumbrance upon fixtures under real property law.
(3) In cases not governed by subsections (4) to (8) of this section, 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.
(4) Except as otherwise provided in subsection (8) of this section, 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:
(a) The security interest is a purchase-money security interest;
(b) The interest of the encumbrancer or owner arises before the goods become fixtures; and
(c) The security interest is perfected by a fixture filing before the goods become fixtures or within twenty
(20) days thereafter.
(5) A perfected security interest in fixtures has priority over a conflicting interest of an encumbrancer or owner of
the real property if:
(a) The debtor has an interest of record in the real property or is in possession of the real property and the
security interest:
1. Is perfected by a fixture filing before the interest of the encumbrancer or owner is of record; and
2. Has priority over any conflicting interest of a predecessor in title of the encumbrancer or owner;
(b) Before the goods become fixtures, the security interest is perfected by any method permitted by this
article and the fixtures are readily removable:
1. Factory or office machines;
2. Equipment that is not primarily used or leased for use in the operation of the real property; or
3. Replacements of domestic appliances that are consumer goods;
(c) The conflicting interest is a lien on the real property obtained by legal or equitable proceedings after the
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(d) The security interest is:
1. Created in a manufactured home in a manufactured-home transaction; and
2. Perfected pursuant to a statute described in KRS 355.9-311(1)(b).
(6) 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:
(a) The encumbrancer or owner has, in a signed[an authenticated] record, consented to the security interest
or disclaimed an interest in the goods as fixtures; or
(b) The debtor has a right to remove the goods as against the encumbrancer or owner.
(7) The priority of the security interest under subsection (6)(b) of this section continues for a reasonable time if the
debtor's right to remove the goods as against the encumbrancer or owner terminates.
(8) (a) 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.
(b) Except as otherwise provided in subsections (5) and (6) of this section, 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.
(9) 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.
Section 75. KRS 355.9-341 is amended to read as follows:
Except as otherwise provided in KRS 355.9-340(3), and unless the bank otherwise agrees in a signed[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.
Section 76. KRS 355.9-404 is amended to read as follows:
(1) Unless an account debtor has made an enforceable agreement not to assert defenses or claims, and subject to
subsections (2) to (5) of this section, the rights of an assignee are subject to:
(a) 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
(b) Any other defense or claim of the account debtor against the assignor which accrues before the account
debtor receives a notification of the assignment signed[authenticated] by the assignor or the assignee.
(2) Subject to subsection (3) of this section and except as otherwise provided in subsection (4) of this section, the
claim of an account debtor against an assignor may be asserted against an assignee under subsection (1) of this
section only to reduce the amount the account debtor owes.
(3) 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.
(4) 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.
(5) This section does not apply to an assignment of a health-care-insurance receivable. ACTS OF THE GENERAL ASSEMBLY 58
Section 77. KRS 355.9-406 is amended to read as follows:
(1) Subject to subsections (2) to (9) and (12) of this section, 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, signed[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.
(2) Subject to subsections[subsection] (8) and (12) of this section, notification is ineffective under subsection (1)
of this section:
(a) If it does not reasonably identify the rights assigned;
(b) 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
(c) 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:
1. Only a portion of the account, chattel paper, or payment intangible has been assigned to that
assignee;
2. A portion has been assigned to another assignee; or
3. The account debtor knows that the assignment to that assignee is limited.
(3) Subject to subsections[subsection] (8) and (12) of this section, 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 (1) of this section.
(4) (a) In this subsection, "promissory note" includes a negotiable instrument that evidences chattel paper.
(b) Except as otherwise provided in subsection (5) and (11) of this section and KRS 355.2A-303 and
355.9-407, and subject to subsection (8) of this section, 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.[(a)] 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.[(b)] 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.
(5) Subsection (4) of this section does not apply to the sale of a payment intangible or promissory note, other than
a sale pursuant to a disposition under KRS 355.9-610 or an acceptance of collateral under KRS 355.9-620.
(6) Except as otherwise provided in subsection (11) of this section and KRS 355.2A-303 and 355.9-407 and
subject to subsections (8) and (9) of this section, 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:
(a) 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
(b) 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.
(7) Subject to subsections[subsection] (8) and (12) of this section, an account debtor may not waive or vary its
option under subsection (2)(c) of this section. CHAPTER 10
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(8) 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.
(9) This section does not apply to an assignment of a health-care-insurance receivable.
(10) Reserved.
(11) Subsections (4) and (6) of this section do not apply to a security interest in an ownership interest in a
general partnership, limited partnership, or limited liability company.
(12) Subsections (1) to (3) and (7) of this section do not apply to a controllable account or controllable payment
intangible.
Section 78. KRS 355.9-408 is amended to read as follows:
(1) Except as otherwise provided in subsections[subsection] (2) and (6) of this section, 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:
(a) Would impair the creation, attachment, or perfection of a security interest; or
(b) 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, health-care-insurance receivable, or general intangible.
(2) Subsection (1) of this section 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 KRS 355.9-610 or an acceptance of collateral under KRS 355.9-620.
(3) (a) Except as otherwise provided in paragraph (b) of this subsection and subsection (6) of this section, 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.[(a)] Would impair the creation, attachment, or perfection of a security interest; or
2.[(b)] 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, health-care-insurance receivable, or general
intangible.
(b) Paragraph (a) of this subsection does not apply to the following statutes, including administrative
regulations promulgated under the authority of those statutes: KRS 304.2-260, KRS 304.24-420,
Subtitle 33 of KRS Chapter 304, and Subtitle 37 of KRS Chapter 304.
(4) 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, or regulation
described in subsection (3) of this section would be effective under law other than this article but is ineffective
under subsection (1) or (3) of this section, the creation, attachment, or perfection of a security interest in the
promissory note, health-care-insurance receivable, or general intangible:
(a) Is not enforceable against the person obligated on the promissory note or the account debtor;
(b) Does not impose a duty or obligation on the person obligated on the promissory note or the account
debtor;
(c) 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;
(d) 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 ACTS OF THE GENERAL ASSEMBLY 60
furnished to the debtor in the transaction giving rise to the promissory note, health-care-insurance
receivable, or general intangible;
(e) 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
(f) Does not entitle the secured party to enforce the security interest in the promissory note, health-care-
insurance receivable, or general intangible.
(5) This section prevails over any inconsistent provisions of the following statutes and any administrative
regulations based on those statutes: KRS 56.230(3)[(2)], 138.320(5)[(3)], 138.665(5)[(4)], 138.720(5),
139.250, 154A.400(3), 190.047(1), 190.070(2)(c), 217B.535(2),[ 228.070(2),] 230.300(11), 234.330(6)[(10)],
243.630(2), 260.815, 286.4-460(2), 292.320(3)[(2)](b), 286.8-036(3), 304.3-410(2)(f), 304.3-520(5), 333.080,
350.135(1), 365.430(1)[(27)], and 286.9-070(6)[(2)].
(6) This section does not apply to a security interest in an ownership interest in a general partnership, limited
partnership, or limited liability company[Subsection (3) of this section does not apply to the following
statutes and to administrative regulations promulgated under the authority of those statutes: KRS 304.2-260,
KRS 304.24-420, Subtitle 33 of KRS Chapter 304, and Subtitle 37 of KRS Chapter 304].
(7) In this section, "promissory note" includes a negotiable instrument that evidences chattel paper.
Section 79. KRS 355.9-509 is amended to read as follows:
(1) 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:
(a) The debtor authorizes the filing in a signed[an authenticated] record or pursuant to subsection [(1) or
](2) or (3) of this section; or
(b) 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.
(2) By signing[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:
(a) The collateral described in the security agreement; and
(b) Property that becomes collateral under KRS 355.9-315(1)(b), whether or not the security agreement
expressly covers proceeds.
(3) By acquiring collateral in which a security interest or agricultural lien continues under KRS 355.9-315(1)(a), a
debtor authorizes the filing of an initial financing statement, and an amendment, covering the collateral and
property that becomes collateral under KRS 355.9-315(1)(b).
(4) 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:
(a) The secured party of record authorizes the filing; or
(b) 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 KRS 355.9-513(1) or (3), the
debtor authorizes the filing, and the termination statement indicates that the debtor authorized it to be
filed.
(5) If there is more than one (1) secured party of record for a financing statement, each secured party of record
may authorize the filing of an amendment under subsection (4) of this section.
Section 80. KRS 355.9-513 is amended to read as follows:
(1) 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:
(a) 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
(b) The debtor did not authorize the filing of the initial financing statement.
(2) To comply with subsection (1) of this section, a secured party shall cause the secured party of record to file the
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(a) Within one (1) 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
(b) If earlier, within twenty (20) days after the secured party receives a signed[an authenticated] demand
from a debtor.
(3) In cases not governed by subsection (1) of this section, within twenty (20) days after a secured party receives a
signed[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:
(a) 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;
(b) 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;
(c) The financing statement covers goods that were the subject of a consignment to the debtor but are not in
the debtor's possession; or
(d) The debtor did not authorize the filing of the initial financing statement.
(4) (a) Except as otherwise provided in KRS 355.9-510, upon the filing of a termination statement with the
filing office, the financing statement to which the termination statement relates ceases to be effective.
(b) Except as otherwise provided in KRS 355.9-510, for purposes of KRS 355.9-519(7), 355.9-522(1), and
355.9-523(3), 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.
Section 81. KRS 355.9-601 is amended to read as follows:
(1) After default, a secured party has the rights provided in this part of this article and, except as otherwise
provided in KRS 355.9-602, those provided by agreement of the parties. A secured party:
(a) May reduce a claim to judgment, foreclose, or otherwise enforce the claim, security interest, or
agricultural lien by any available judicial procedure; and
(b) If the collateral is documents, may proceed either as to the documents or as to the goods they cover.
(2) A secured party in possession of collateral or control of collateral under KRS 355.7-106, 355.9-104, 355.9-
105, Section 47 of this Act, 355.9-106,[ or] 355.9-107, or Section 48 of this Act has the rights and duties
provided in KRS 355.9-207.
(3) The rights under subsections (1) and (2) of this section are cumulative and may be exercised simultaneously.
(4) Except as otherwise provided in subsection (7) of this section and KRS 355.9-605, after default, a debtor and
an obligor have the rights provided in this part of this article and by agreement of the parties.
(5) 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:
(a) The date of perfection of the security interest or agricultural lien in the collateral;
(b) The date of filing a financing statement covering the collateral; or
(c) Any date specified in a statute under which the agricultural lien was created.
(6) 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.
(7) Except as otherwise provided in KRS 355.9-607(3), this part of this article imposes no duties upon a secured
party that is a consignor or is a buyer of accounts, chattel paper, payment intangibles, or promissory notes.
Section 82. KRS 355.9-605 is amended to read as follows: ACTS OF THE GENERAL ASSEMBLY 62
(1) Except as provided in subsection (2) of this section, a secured party does not owe a duty based on its status as
secured party:
(a)[(1)] To a person that is a debtor or obligor, unless the secured party knows:
1.[(a)] That the person is a debtor or obligor;
2.[(b)] The identity of the person; and
3.[(c)] How to communicate with the person; or
(b)[(2)] To a secured party or lienholder that has filed a financing statement against a person, unless the
secured party knows:
1.[(a)] That the person is a debtor; and
2.[(b)] The identity of the person.
(2) A secured party owes a duty based on its status as a secured party to a person if, at the time the secured
party obtains control of collateral that is a controllable account, controllable electronic record, or
controllable payment intangible or at the time the security interest attaches to the collateral, whichever is
later:
(a) The person is a debtor or obligor; and
(b) The secured party knows that the information in subsection (1)(a)1., 2., or 3. of this section relating
to the person is not provided by the collateral, a record attached to or logically associated with the
collateral, or the system in which the collateral is recorded.
Section 83. KRS 355.9-608 is amended to read as follows:
(1) If a security interest or agricultural lien secures payment or performance of an obligation, the following rules
apply:
(a) A secured party shall apply or pay over for application the cash proceeds of collection or enforcement
under KRS 355.9-607 in the following order to:
1. 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;
2. The satisfaction of obligations secured by the security interest or agricultural lien under which
the collection or enforcement is made; and
3. 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 a signed[an authenticated] demand for
proceeds before distribution of the proceeds is completed;[.]
(b) 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 (a)3. of this subsection;[.]
(c) A secured party need not apply or pay over for application noncash proceeds of collection and
enforcement under KRS 355.9-607 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; and[.]
(d) A secured party shall account to and pay a debtor for any surplus, and the obligor is liable for any
deficiency.
(2) 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.
Section 84. KRS 355.9-611 is amended to read as follows:
(1) In this section, "notification date" means the earlier of the date on which:
(a) A secured party sends to the debtor and any secondary obligor a signed[an authenticated] notification of
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(b) The debtor and any secondary obligor waive the right to notification.
(2) Except as otherwise provided in subsection (4) of this section, a secured party that disposes of collateral under
KRS 355.9-610 shall send to the persons specified in subsection (3) of this section a reasonable
signed[authenticated] notification of disposition.
(3) To comply with subsection (2) of this section, the secured party shall send a signed[an authenticated]
notification of disposition to:
(a) The debtor;
(b) Any secondary obligor; and
(c) If the collateral is other than consumer goods:
1. Any other person from which the secured party has received, before the notification date, a
signed[an authenticated] notification of a claim of an interest in the collateral;
2. Any other secured party or lienholder that, ten (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:
a. Identified the collateral;
b. Was indexed under the debtor's name as of that date; and
c. Was filed in the office in which to file a financing statement against the debtor covering
the collateral as of that date; and
3. Any other secured party that, ten (10) days before the notification date, held a security interest in
the collateral perfected by compliance with a statute, regulation, or treaty described in KRS
355.9-311(1).
(4) Subsection (2) of this section 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.
(5) A secured party complies with the requirement for notification prescribed by subsection (3)(c)2. of this section
if:
(a) Not later than twenty (20) days or earlier than thirty (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 (3)(c)2. of this section; and
(b) Before the notification date, the secured party:
1. Did not receive a response to the request for information; or
2. Received a response to the request for information and sent a signed[an authenticated]
notification of disposition to each secured party or other lienholder named in that response whose
financing statement covered the collateral.
Section 85. KRS 355.9-613 is amended to read as follows:
(1) Except in a consumer-goods transaction, the following rules apply:
(a)[(1)] The contents of a notification of disposition are sufficient if the notification:
1.[(a)] Describes the debtor and the secured party;
2.[(b)] Describes the collateral that is the subject of the intended disposition;
3.[(c)] States the method of intended disposition;
4.[(d)] States that the debtor is entitled to an accounting of the unpaid indebtedness and states the
charge, if any, for an accounting; and
5.[(e)] States the time and place of a public disposition or the time after which any other disposition is
to be made;[.] ACTS OF THE GENERAL ASSEMBLY 64
(b)[(2)] Whether the contents of a notification that lacks any of the information specified in paragraph
(a)[subsection (1)] of this subsection[section] are nevertheless sufficient is a question of fact;[.]
(c)[(3)] The contents of a notification providing substantially the information specified in paragraph
(a)[subsection (1)] of this subsection[section] are sufficient, even if the notification includes:
1.[(a)] Information not specified by that paragraph[subsection]; or
2.[(b)] Minor errors that are not seriously misleading;[.]
(d)[(4)] A particular phrasing of the notification is not required; and[.]
(e)[(5)] The following form of notification and the form appearing in KRS 355.9-614(1)(c)[(3)], when
completed in accordance with the instructions in subsection (2) of this section and subsection (2) of
Section 86 of this Act, 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)
{1} Name of any debtor that is not an addressee: (Name of each debtor)
{2} We will sell (describe collateral) (to the highest qualified bidder) at public sale. A sale could include a
lease or license. The sale will be held as follows:
(Date)
(Time)
(Place)
{3} We will sell (describe collateral) at private sale sometime after (date). A sale could include a lease or
license.
{4} You are entitled to an accounting of the unpaid indebtedness secured by the property that we intend to
sell, or as applicable, lease or license.
{5} If you request an accounting, you must pay a charge of $ (amount).
{6} You may request an accounting by calling us at (telephone number).
[End of Form]".
["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>".]
(2) The following instructions apply to the form of notification in subsection (1)(e) of this section: CHAPTER 10
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(a) The instructions in this subsection refer to the numbers in braces before items in the form of
notification in subsection (1)(e) of this section. Do not include the numbers or braces in the
notification. The numbers and braces are used only for the purpose of these instructions;
(b) Include and complete item {1} only if there is a debtor that is not an addressee of the notification and
list the name or names;
(c) Include and complete either item {2}, if the notification relates to a public disposition of the
collateral, or item {3}, if the notification relates to a private disposition of the collateral. If item {2} is
included, include the words "to the highest qualified bidder" only if applicable;
(d) Include and complete items {4} and {6}; and
(e) Include and complete item {5} only if the sender will charge the recipient for an accounting.
Section 86. KRS 355.9-614 is amended to read as follows:
(1) In a consumer-goods transaction, the following rules apply:
(a)[(1)] A notification of disposition must provide the following information:
1.[(a)] The information specified in KRS 355.9-613(1)(a);
2.[(b)] A description of any liability for a deficiency of the person to which the notification is sent;
3.[(c)] A telephone number from which the amount that must be paid to the secured party to redeem the
collateral under KRS 355.9-623 is available; and
4.[(d)] A telephone number or mailing address from which additional information concerning the
disposition and the obligation secured is available;[.]
(b)[(2)] A particular phrasing of the notification is not required;[.]
(c)[(3)] The following form of notification, when completed in accordance with the instructions in
subsection (2) of this section, 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: (Identify transaction)
We have your (describe collateral) because you broke promises in our agreement.
{1} 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)
(Place)
You may attend the sale and bring bidders if you want.
{2} We will sell (describe collateral) at private sale sometime after (date). A sale could include a lease or
license.
{3} 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.
{4} You can get your 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). ACTS OF THE GENERAL ASSEMBLY 66
{5} If you want us to explain to you in (writing) (writing or in (description of electronic record)) (description
of electronic record) how we have figured the amount you owe us, {6} call us at (telephone number) (or) (write us
at (secured party's address)) (or contact us by (description of electronic communication method)) {7} and request
(a written explanation) (a written explanation or an explanation in (description of electronic record)) (an
explanation in (description of electronic record)).
{8} We will charge you $ (amount) for the explanation if we sent you another written explanation of the
amount you owe us within the last six (6) months.
{9} If you need more information about the sale, (call us at (telephone number)) (or) (write us at (secured
party's address)) (or contact us by (description of electronic communication method)).
{10} 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]";
["<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: ...............
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 (6) 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>"]
(d)[(4)] A notification in the form of paragraph (c)[subsection (3)] of this subsection[section] is
sufficient, even if additional information appears at the end of the form;[.] CHAPTER 10
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(e)[(5)] A notification in the form of paragraph (c)[subsection (3)] of this subsection[section] is
sufficient, even if it includes errors in information not required by paragraph (a)[subsection (1)] of this
subsection[section], unless the error is misleading with respect to rights arising under this article; and[.]
(f)[(6)] If a notification under this section is not in the form of paragraph (c)[subsection (3)] of this
subsection[section], law other than this article determines the effect of including information not
required by paragraph (a)[subsection (1)] of this subsection[section].
(2) The following instructions apply to the form of notification in subsection (1)(c) of this section:
(a) The instructions in this subsection refer to the numbers in braces before items in the form of
notification in subsection (1)(c) of this section. Do not include the numbers or braces in the
notification. The numbers and braces are used only for the purpose of these instructions;
(b) Include and complete either item {1}, if the notification relates to a public disposition of the
collateral, or item {2}, if the notification relates to a private disposition of the collateral;
(c) Include and complete items {3}, {4}, {5}, {6}, and {7};
(d) In item {5}, include and complete any one (1) of the three (3) alternative methods for the explanation
- writing, writing or electronic record, or electronic record;
(e) In item {6}, include the telephone number. In addition, the sender may include and complete either
or both of the two (2) additional alternative methods of communication - writing or electronic
communication - for the recipient of the notification to communicate with the sender. Neither of the
two (2) additional methods of communication is required to be included;
(f) In item {7}, include and complete the method or methods for the explanation – writing, writing or
electronic record, or electronic record – included in item {5};
(g) Include and complete item {8} only if a written explanation is included in item {5} as a method for
communicating the explanation and the sender will charge the recipient for another written
explanation;
(h) In item {9}, include either the telephone number or the address or both the telephone number and the
address. In addition, the sender may include and complete the additional method of communication –
electronic communication – for the recipient of the notification to communicate with the sender. The
additional method of electronic communication is not required to be included; and
(i) If item {10} does not apply, insert "None" after "agreement".
Section 87. KRS 355.9-615 is amended to read as follows:
(1) A secured party shall apply or pay over for application the cash proceeds of disposition under KRS 355.9-610
in the following order to:
(a) 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;
(b) The satisfaction of obligations secured by the security interest or agricultural lien under which the
disposition is made;
(c) The satisfaction of obligations secured by any subordinate security interest in or other subordinate lien
on the collateral if:
1. The secured party receives from the holder of the subordinate security interest or other lien a
signed[an authenticated] demand for proceeds before distribution of the proceeds is completed;
and
2. 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
(d) A secured party that is a consignor of the collateral if the secured party receives from the consignor a
signed[an authenticated] demand for proceeds before distribution of the proceeds is completed. ACTS OF THE GENERAL ASSEMBLY 68
(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 does so, the secured party need not
comply with the holder's demand under subsection (1)(c) of this section.
(3) (a) A secured party need not apply or pay over for application noncash proceeds of disposition under KRS
355.9-610 unless the failure to do so would be commercially unreasonable.
(b) A secured party that applies or pays over for application noncash proceeds shall do so in a
commercially reasonable manner.
(4) 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 (1) of this section and permitted by
subsection (3) of this section:
(a) Unless subsection (1)(d) of this section 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
(b) The obligor is liable for any deficiency.
(5) If the underlying transaction is a sale of accounts, chattel paper, payment intangibles, or promissory notes:
(a) The debtor is not entitled to any surplus; and
(b) The obligor is not liable for any deficiency.
(6) 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 of this article to a transferee other than the secured
party, a person related to the secured party, or a secondary obligor if:
(a) The transferee in the disposition is the secured party, a person related to the secured party, or a
secondary obligor; and
(b) 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.
(7) 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:
(a) Takes the cash proceeds free of the security interest or other lien;
(b) Is not obligated to apply the proceeds of the disposition to the satisfaction of obligations secured by the
security interest or other lien; and
(c) Is not obligated to account to or pay the holder of the security interest or other lien for any surplus.
Section 88. KRS 355.9-616 is amended to read as follows:
(1) In this section:
(a) "Explanation" means a record[writing] that:
1. States the amount of the surplus or deficiency;
2. Provides an explanation in accordance with subsection (3) of this section of how the secured
party calculated the surplus or deficiency;
3. 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
4. Provides a telephone number or mailing address from which additional information concerning
the transaction is available; and[.]
(b) "Request" means a record:
1. Signed[Authenticated] by a debtor or consumer obligor;
2. Requesting that the recipient provide an explanation; and
3. Sent after disposition of the collateral under KRS 355.9-610. CHAPTER 10
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(2) In a consumer-goods transaction in which the debtor is entitled to a surplus or a consumer obligor is liable for
a deficiency under KRS 355.9-615, the secured party shall:
(a) Send an explanation to the debtor or consumer obligor, as applicable, after the disposition and:
1. Before or when the secured party accounts to the debtor and pays any surplus or first makes[
written] demand in a record on the consumer obligor after the disposition for payment of the
deficiency; and
2. Within fourteen (14) days after receipt of a request; or
(b) In the case of a consumer obligor who is liable for a deficiency, within fourteen (14) days after receipt
of a request, send to the consumer obligor a record waiving the secured party's right to a deficiency.
(3) To comply with subsection (1)(a)2. of this section, an explanation[a writing] must provide the following
information in the following order:
(a) 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:
1. If the secured party takes or receives possession of the collateral after default, not more than
thirty-five (35) days before the secured party takes or receives possession; or
2. If the secured party takes or receives possession of the collateral before default or does not take
possession of the collateral, not more than thirty-five (35) days before the disposition;
(b) The amount of proceeds of the disposition;
(c) The aggregate amount of the obligations after deducting the amount of proceeds;
(d) 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;
(e) 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 (a) of this subsection; and
(f) The amount of the surplus or deficiency.
(4) (a) A particular phrasing of the explanation is not required.
(b) An explanation complying substantially with the requirements of subsection (1) of this section is
sufficient, even if it includes minor errors that are not seriously misleading.
(5) A debtor or consumer obligor is entitled without charge to one (1) response to a request under this section
during any six (6) month period in which the secured party did not send to the debtor or consumer obligor an
explanation pursuant to subsection (2)(a) of this section. The secured party may require payment of a charge
not exceeding twenty-five dollars ($25) for each additional response.
Section 89. KRS 355.9-619 is amended to read as follows:
(1) In this section, "transfer statement" means a record signed[authenticated] by a secured party stating:
(a) That the debtor has defaulted in connection with an obligation secured by specified collateral;
(b) That the secured party has exercised its post-default remedies with respect to the collateral;
(c) That, by reason of the exercise, a transferee has acquired the rights of the debtor in the collateral; and
(d) The name and mailing address of the secured party, debtor, and transferee.
(2) (a) 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.
(b) 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: ACTS OF THE GENERAL ASSEMBLY 70
1.[(a)] Accept the transfer statement;
2.[(b)] Promptly amend its records to reflect the transfer; and
3.[(c)] If applicable, issue a new appropriate certificate of title in the name of the transferee.
(3) A transfer of the record or legal title to collateral to a secured party under subsection (2) of this section 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.
(4) A secured party who complies with KRS 186.045(6) is considered to have provided a transfer statement for
purposes of this section.
Section 90. KRS 355.9-620 is amended to read as follows:
(1) Except as otherwise provided in subsection (7) of this section, a secured party may accept collateral in full or
partial satisfaction of the obligation it secures only if:
(a) The debtor consents to the acceptance under subsection (3) of this section;
(b) The secured party does not receive, within the time set forth in subsection (4) of this section, a
notification of objection to the proposal signed[authenticated] by:
1. A person to which the secured party was required to send a proposal under KRS 355.9-621; or
2. 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;
(c) If the collateral is consumer goods, the collateral is not in the possession of the debtor when the debtor
consents to the acceptance; and
(d) Subsection (5) of this section does not require the secured party to dispose of the collateral or the debtor
waives the requirement pursuant to KRS 355.9-624.
(2) A purported or apparent acceptance of collateral under this section is ineffective unless:
(a) The secured party consents to the acceptance in a signed[an authenticated] record or sends a proposal to
the debtor; and
(b) The conditions of subsection (1) of this section are met.
(3) For purposes of this section:
(a) 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 signed[authenticated] after default; and
(b) 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 signed[authenticated] after default or the
secured party:
1. 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;
2. In the proposal, proposes to accept collateral in full satisfaction of the obligation it secures; and
3. Does not receive a notification of objection signed[authenticated] by the debtor within twenty
(20) days after the proposal is sent.
(4) To be effective under subsection (1)(b) of this section, a notification of objection must be received by the
secured party:
(a) In the case of a person to which the proposal was sent pursuant to KRS 355.9-621, within twenty (20)
days after notification was sent to that person; and
(b) In other cases:
1. Within twenty (20) days after the last notification was sent pursuant to KRS 355.9-621; or
2. If a notification was not sent, before the debtor consents to the acceptance under subsection (3)
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(5) A secured party that has taken possession of collateral shall dispose of the collateral pursuant to KRS 355.9-
610 within the time specified in subsection (6) of this section if:
(a) Sixty percent (60%) of the cash price has been paid in the case of a purchase-money security interest in
consumer goods; or
(b) Sixty percent (60%) of the principal amount of the obligation secured has been paid in the case of a
non-purchase-money security interest in consumer goods.
(6) To comply with subsection (5) of this section, the secured party shall dispose of the collateral:
(a) Within ninety (90) days after taking possession; or
(b) Within any longer period to which the debtor and all secondary obligors have agreed in an agreement to
that effect entered into and signed[authenticated] after default.
(7) In a consumer transaction, a secured party may not accept collateral in partial satisfaction of the obligation it
secures.
Section 91. KRS 355.9-621 is amended to read as follows:
(1) A secured party that desires to accept collateral in full or partial satisfaction of the obligation it secures shall
send its proposal to:
(a) Any person from which the secured party has received, before the debtor consented to the acceptance, a
signed[an authenticated] notification of a claim of an interest in the collateral;
(b) Any other secured party or lienholder that, ten (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:
1. Identified the collateral;
2. Was indexed under the debtor's name as of that date; and
3. 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
(c) Any other secured party that, ten (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 KRS 355.9-311(1).
(2) 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 (1) of this section.
Section 92. KRS 355.9-624 is amended to read as follows:
(1) A debtor or secondary obligor may waive the right to notification of disposition of collateral under KRS 355.9-
611 only by an agreement to that effect entered into and signed[authenticated] after default.
(2) A debtor may waive the right to require disposition of collateral under KRS 355.9-620(5) only by an
agreement to that effect entered into and signed[authenticated] after default.
(3) Except in a consumer-goods transaction, a debtor or secondary obligor may waive the right to redeem
collateral under KRS 355.9-623 only by an agreement to that effect entered into and signed[authenticated]
after default.
Section 93. KRS 355.9-628 is amended to read as follows:
(1) Subject to subsection (6) of this section, 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:
(a) 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
(b) The secured party's failure to comply with this article does not affect the liability of the person for a
deficiency.
(2) Subject to subsection (6) of this section, a secured party is not liable because of its status as secured party: ACTS OF THE GENERAL ASSEMBLY 72
(a) To a person that is a debtor or obligor, unless the secured party knows:
1. That the person is a debtor or obligor;
2. The identity of the person; and
3. How to communicate with the person; or
(b) To a secured party or lienholder that has filed a financing statement against a person, unless the secured
party knows:
1. That the person is a debtor; and
2. The identity of the person.
(3) 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:
(a) A debtor's representation concerning the purpose for which collateral was to be used, acquired, or held;
or
(b) An obligor's representation concerning the purpose for which a secured obligation was incurred.
(4) A secured party is not liable to any person under KRS 355.9-625(3)(b) for its failure to comply with KRS
355.9-616.
(5) A secured party is not liable under KRS 355.9-625(3)(b) more than once with respect to any one (1) secured
obligation.
(6) Subsections (1) and (2) of this section do not apply to limit the liability of a secured party to a person if, at
the time the secured party obtains control of collateral that is a controllable account, controllable electronic
record, or controllable payment intangible or at the time the security interest attaches to the collateral,
whichever is later:
(a) The person is a debtor or obligor; and
(b) The secured party knows that the information in subsection (2)(a)1., 2., or 3. of this section relating
to the person is not provided by the collateral, a record attached to or logically associated with the
collateral, or the system in which the collateral is recorded.
SECTION 94. ARTICLE 12 OF KRS CHAPTER 355 IS ESTABLISHED, AND A NEW SECTION
THEREOF IS CREATED TO READ AS FOLLOWS:
This article may be cited as Uniform Commercial Code – Controllable Electronic Records.
SECTION 95. A NEW SECTION OF ARTICLE 12 OF KRS CHAPTER 355 IS CREATED TO READ
AS FOLLOWS:
(1) In this article:
(a) 1. "Controllable electronic record" means a record stored in an electronic medium that can be
subjected to control under Section 98 of this Act.
2. The term does not include:
a. A controllable account;
b. A controllable payment intangible;
c. A deposit account;
d. An electronic copy of a record evidencing chattel paper;
e. An electronic document of title;
f. Electronic money;
g. Investment property; or
h. A transferable record; CHAPTER 10
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(b) "Qualifying purchaser" means a purchaser of a controllable electronic record or an interest in a
controllable electronic record that obtains control of the controllable electronic record for value, in
good faith, and without notice of a claim of a property right in the controllable electronic record;
(c) "Transferable record" has the meaning provided for that term in:
1. The Electronic Signatures in Global and National Commerce Act, 15 U.S.C. sec. 7021, as
amended; or
2. The Uniform Electronic Transactions Act, Section 112 of this Act; and
(d) "Value" has the meaning provided in KRS 355.3-303(1), as if references in that subsection to an
"instrument" were references to a controllable account, controllable electronic record, or
controllable payment intangible.
(2) The following definitions in Article 9 of this chapter apply to this article:
(a) "Account debtor";
(b) "Chattel paper";
(c) "Controllable account";
(d) "Controllable payment intangible";
(e) "Deposit account";
(f) "Electronic money"; and
(g) "Investment property."
(3) Article 1 of this chapter contains general definitions and principles of construction and interpretation
applicable throughout this article.
SECTION 96. A NEW SECTION OF ARTICLE 12 OF KRS CHAPTER 355 IS CREATED TO READ
AS FOLLOWS:
(1) If there is conflict between this article and Article 9 of this chapter, Article 9 governs.
(2) A transaction subject to this article is subject to any applicable rule of law that establishes a different rule
for consumers.
SECTION 97. A NEW SECTION OF ARTICLE 12 OF KRS CHAPTER 355 IS CREATED TO READ
AS FOLLOWS:
(1) This section applies to the acquisition and purchase of rights in a controllable account or controllable
payment intangible, including the rights and benefits under subsections (3), (4), (5), (7), and (8) of this
section of a purchaser and qualifying purchaser, in the same manner this section applies to a controllable
electronic record.
(2) To determine whether a purchaser of a controllable account or a controllable payment intangible is a
qualifying purchaser, the purchaser obtains control of the account or payment intangible if it obtains
control of the controllable electronic record that evidences the account or payment intangible.
(3) Except as provided in this section, law other than this article determines whether a person acquires a right
in a controllable electronic record and the right the person acquires.
(4) A purchaser of a controllable electronic record acquires all rights in the controllable electronic record that
the transferor had or had power to transfer, except that a purchaser of a limited interest in a controllable
electronic record acquires rights only to the extent of the interest purchased.
(5) A qualifying purchaser acquires its rights in the controllable electronic record free of a claim of a property
right in the controllable electronic record.
(6) Except as provided in subsections (1) and (5) of this section for a controllable account and a controllable
payment intangible or law other than this article, a qualifying purchaser takes a right to payment, right to
performance, or other interest in property evidenced by the controllable electronic record subject to a claim
of a property right in the right to payment, right to performance, or other interest in property. ACTS OF THE GENERAL ASSEMBLY 74
(7) An action may not be asserted against a qualifying purchaser based on both a purchase by the qualifying
purchaser of a controllable electronic record and a claim of a property right in another controllable
electronic record, whether the action is framed in conversion, replevin, constructive trust, equitable lien, or
other theory.
(8) Filing of a financing statement under Article 9 of this chapter is not notice of a claim of a property right in
a controllable electronic record.
SECTION 98. A NEW SECTION OF ARTICLE 12 OF KRS CHAPTER 355 IS CREATED TO READ
AS FOLLOWS:
(1) A person has control of a controllable electronic record if the electronic record, a record attached to or
logically associated with the electronic record, or a system in which the electronic record is recorded:
(a) Gives the person:
1. Power to avail itself of substantially all the benefit from the electronic record; and
2. Exclusive power, subject to subsection (2) of this section, to:
a. Prevent others from availing themselves of substantially all the benefit from the
electronic record; and
b. Transfer control of the electronic record to another person or cause another person to
obtain control of another controllable electronic record as a result of the transfer of the
electronic record; and
(b) Enables the person to readily identify itself in any way, including by name, identifying number,
cryptographic key, office, or account number, as having the powers specified in paragraph (a) of this
subsection.
(2) Subject to subsection (3) of this section, a power is exclusive under subsection (1)(a)2.a. and b. of this
section even if:
(a) The controllable electronic record, a record attached to or logically associated with the electronic
record, or a system in which the electronic record is recorded limits the use of the electronic record
or has a protocol programmed to cause a change, including a transfer or loss of control or a
modification of benefits afforded by the electronic record; or
(b) The power is shared with another person.
(3) A power of a person is not shared with another person under subsection (2)(b) of this section and the
person's power is not exclusive if:
(a) The person can exercise the power only if the power also is exercised by the other person; and
(b) The other person:
1. Can exercise the power without exercise of the power by the person; or
2. Is the transferor to the person of an interest in the controllable electronic record or a
controllable account or controllable payment intangible evidenced by the controllable
electronic record.
(4) If a person has the powers specified in subsection (1)(a)2.a. and b. of this section, the powers are presumed
to be exclusive.
(5) A person has control of a controllable electronic record if another person, other than the transferor to the
person of an interest in the controllable electronic record or a controllable account or controllable payment
intangible evidenced by the controllable electronic record:
(a) Has control of the electronic record and acknowledges that it has control on behalf of the person; or
(b) Obtains control of the electronic record after having acknowledged that it will obtain control of the
electronic record on behalf of the person.
(6) A person that has control under this section is not required to acknowledge that it has control on behalf of
another person. CHAPTER 10
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(7) If a person acknowledges that it has or will obtain control on behalf of another person, unless the person
otherwise agrees or law other than this article or Article 9 of this chapter otherwise provides, the person
does not owe any duty to the other person and is not required to confirm acknowledgment to any other
person.
SECTION 99. A NEW SECTION OF ARTICLE 12 OF KRS CHAPTER 355 IS CREATED TO READ
AS FOLLOWS:
(1) An account debtor on a controllable account or controllable payment intangible may discharge its
obligation by paying:
(a) The person having control of the controllable electronic record that evidences the controllable
account or controllable payment intangible; or
(b) Except as provided in subsection (2) of this section, a person that formerly had control of the
controllable electronic record.
(2) Subject to subsection (4) of this section, the account debtor may not discharge its obligation by paying a
person that formerly had control of the controllable electronic record if the account debtor receives a
notification that:
(a) Is signed by a person that formerly had control or the person to which control was transferred;
(b) Reasonably identifies the controllable account or controllable payment intangible;
(c) Notifies the account debtor that control of the controllable electronic record that evidences the
controllable account or controllable payment intangible was transferred;
(d) Identifies the transferee, in any reasonable way, including by name, identifying number,
cryptographic key, office, or account number; and
(e) Provides a commercially reasonable method by which the account debtor is to pay the transferee.
(3) After receipt of a notification that complies with subsection (2) of this section, the account debtor may
discharge its obligation by paying in accordance with the notification and may not discharge the obligation
by paying a person that formerly had control.
(4) Subject to subsection (8) of this section, notification is ineffective under subsection (2) of this section:
(a) Unless, before the notification is sent, the account debtor and the person that, at that time, had
control of the controllable electronic record that evidences the controllable account or controllable
payment intangible agree in a signed record to a commercially reasonable method by which a person
may furnish reasonable proof that control has been transferred;
(b) To the extent an agreement between the account debtor and 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
(c) At the option of the account debtor, if the notification notifies the account debtor to:
1. Divide a payment;
2. Make less than the full amount of an installment or other periodic payment; or
3. Pay any part of a payment by more than one (1) method or to more than one (1) person.
(5) Subject to subsection (8) of this section, if requested by the account debtor, the person giving the
notification under subsection (2) of this section seasonably shall furnish reasonable proof, using the
method in the agreement referred to in subsection (4)(a) of this section, that control of the controllable
electronic record has been transferred. Unless the person complies with the request, the account debtor may
discharge its obligation by paying a person that formerly had control, even if the account debtor has
received a notification under subsection (2) of this section.
(6) A person furnishes reasonable proof under subsection (5) of this section that control has been transferred if
the person demonstrates, using the method in the agreement referred to in subsection (4)(a) of this section,
that the transferee has the power to:
(a) Avail itself of substantially all the benefit from the controllable electronic record; ACTS OF THE GENERAL ASSEMBLY 76
(b) Prevent others from availing themselves of substantially all the benefit from the controllable
electronic record; and
(c) Transfer the powers specified in paragraphs (a) and (b) of this subsection to another person.
(7) Subject to subsection (8) of this section, an account debtor may not waive or vary its rights under
subsections (4)(a) and (5) of this section or its option under subsection (4)(c) of this section.
(8) 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.
SECTION 100. A NEW SECTION OF ARTICLE 12 OF KRS CHAPTER 355 IS CREATED TO READ
AS FOLLOWS:
(1) Except as provided in subsection (2) of this section, the local law of a controllable electronic record's
jurisdiction governs the matters covered by this article.
(2) For a controllable electronic record that evidences a controllable account or controllable payment
intangible, the local law of the controllable electronic record's jurisdiction governs a matter covered by
Section 99 of this Act unless an effective agreement determines that the local law of another jurisdiction
governs.
(3) The following rules determine a controllable electronic record's jurisdiction under this section:
(a) If the controllable electronic record, or a record attached to or logically associated with the
controllable electronic record and readily available for review, expressly provides that a particular
jurisdiction is the controllable electronic record's jurisdiction for purposes of this article or chapter,
that jurisdiction is the controllable electronic record's jurisdiction;
(b) If paragraph (a) of this subsection does not apply and the rules of the system in which the
controllable electronic record is recorded are readily available for review and expressly provide that a
particular jurisdiction is the controllable electronic record's jurisdiction for purposes of this article
or this chapter, that jurisdiction is the controllable electronic record's jurisdiction;
(c) If paragraphs (a) and (b) of this subsection do not apply and the controllable electronic record, or a
record attached to or logically associated with the controllable electronic record and readily available
for review, expressly provides that the controllable electronic record is governed by the law of a
particular jurisdiction, that jurisdiction is the controllable electronic record's jurisdiction;
(d) If paragraphs (a), (b), and (c) of this subsection do not apply and the rules of the system in which the
controllable electronic record is recorded are readily available for review and expressly provide that
the controllable electronic record or the system is governed by the law of a particular jurisdiction,
that jurisdiction is the controllable electronic record's jurisdiction; and
(e) If paragraphs (a) to (d) of this subsection do not apply, the controllable electronic record's
jurisdiction is the District of Columbia.
(4) (a) If subsection (3)(e) of this section applies and Article 12 is not in effect in the District of Columbia
without material modification, the governing law for a matter covered by this article is the law of the
District of Columbia as though Article 12 were in effect in the District of Columbia without material
modification.
(b) In this subsection, "Article 12" means Article 12 of the Uniform Commercial Code Amendments
(2022).
(5) To the extent subsections (1) and (2) of this section provide that the local law of the controllable electronic
record's jurisdiction governs a matter covered by this article, that law governs even if the matter or a
transaction to which the matter relates does not bear any relation to the controllable electronic record's
jurisdiction.
(6) The rights acquired under Section 97 of this Act by a purchaser or qualifying purchaser are governed by
the law applicable under this section at the time of purchase.
SECTION 101. A NEW SECTION OF ARTICLE 11 OF KRS CHAPTER 355 IS CREATED TO READ
AS FOLLOWS:
This article may be cited as Transitional Provisions for Uniform Commercial Code Amendments (2022). CHAPTER 10
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SECTION 102. A NEW SECTION OF ARTICLE 11 OF KRS CHAPTER 355 IS CREATED TO READ
AS FOLLOWS:
(1) In this article:
(a) "Adjustment date" means July 1, 2025; and
(b) "Article 12 property" means a controllable account, controllable electronic record, or controllable
payment intangible.
(2) The following definitions in other articles of this chapter apply to this article:
(a) "Controllable account." Section 44 of this Act;
(b) "Controllable electronic record." Section 95 of this Act;
(c) "Controllable payment intangible." Section 44 of this Act;
(d) "Electronic money." Section 44 of this Act; and
(e) "Financing statement." Section 44 of this Act.
(3) Article 1 of this chapter contains general definitions and principles of construction and interpretation
applicable throughout this article.
SECTION 103. A NEW SECTION OF ARTICLE 11 OF KRS CHAPTER 355 IS CREATED TO READ
AS FOLLOWS:
Except as provided in Sections 104 to 109 of this Act, a transaction validly entered into before the effective date of
this Act and the rights, duties, and interests flowing from the transaction remain valid thereafter and may be
terminated, completed, consummated, or enforced as required or permitted by law other than this chapter or, if
applicable, this chapter, as though this Act had not taken effect.
SECTION 104. A NEW SECTION OF ARTICLE 11 OF KRS CHAPTER 355 IS CREATED TO READ
AS FOLLOWS:
(1) Except as provided in this section and Sections 105 to 109 of this Act, Article 9 of this chapter, as amended
by this Act, and Article 12 of this chapter apply to a transaction, lien, or other interest in property, even if
the transaction, lien, or interest was entered into, created, or acquired before the effective date of this Act.
(2) Except as provided in subsection (3) of this section and Sections 105 to 109 of this Act:
(a) A transaction, lien, or interest in property that was validly entered into, created, or transferred before
the effective date of this Act and was not governed by this chapter, but would be subject to Article 9 of
this chapter, as amended by this Act, or Article 12 of this chapter if it had been entered into, created,
or transferred on or after the effective date of this Act, including the rights, duties, and interests
flowing from the transaction, lien, or interest, remains valid on and after the effective date of this
Act; and
(b) The transaction, lien, or interest may be terminated, completed, consummated, and enforced as
required or permitted by this Act or by the law that would apply if this Act had not taken effect.
(3) This Act does not affect an action, case, or proceeding commenced before the effective date of this Act.
SECTION 105. A NEW SECTION OF ARTICLE 11 OF KRS CHAPTER 355 IS CREATED TO READ
AS FOLLOWS:
(1) A security interest that is enforceable and perfected immediately before the effective date of this Act is a
perfected security interest under this Act if, on the effective date of this Act, the requirements for
enforceability and perfection under this Act are satisfied without further action.
(2) If a security interest is enforceable and perfected immediately before the effective date of this Act, but the
requirements for enforceability or perfection under this Act are not satisfied on the effective date of this
Act, the security interest:
(a) Is a perfected security interest until the earlier of the time perfection would have ceased under the
law in effect immediately before the effective date of this Act or the adjustment date; ACTS OF THE GENERAL ASSEMBLY 78
(b) Remains enforceable thereafter only if the security interest satisfies the requirements for
enforceability under Section 50 of this Act, as amended by this Act, before the adjustment date; and
(c) Remains perfected thereafter only if the requirements for perfection under this Act are satisfied
before the time specified in paragraph (a) of this subsection.
SECTION 106. A NEW SECTION OF ARTICLE 11 OF KRS CHAPTER 355 IS CREATED TO READ
AS FOLLOWS:
A security interest that is enforceable immediately before the effective date of this Act but is unperfected at that
time:
(1) Remains an enforceable security interest until the adjustment date;
(2) Remains enforceable thereafter if the security interest becomes enforceable under Section 50 of this Act, as
amended by this Act, on the effective date of this Act or before the adjustment date; and
(3) Becomes perfected:
(a) Without further action, on the effective date of this Act if the requirements for perfection under this
Act are satisfied before or at that time; or
(b) When the requirements for perfection are satisfied if the requirements are satisfied after that time.
SECTION 107. A NEW SECTION OF ARTICLE 11 OF KRS CHAPTER 355 IS CREATED TO READ
AS FOLLOWS:
(1) (a) If action, other than the filing of a financing statement, is taken before the effective date of this Act
and the action would have resulted in perfection of the security interest had the security interest
become enforceable before the effective date of this Act, the action is effective to perfect a security
interest that attaches under this Act before the adjustment date.
(b) An attached security interest becomes unperfected on the adjustment date unless the security interest
becomes a perfected security interest under this Act before the adjustment date.
(2) The filing of a financing statement before the effective date of this Act is effective to perfect a security
interest on the effective date of this Act to the extent the filing would satisfy the requirements for perfection
under this Act.
(3) The taking of an action before the effective date of this Act is sufficient for the enforceability of a security
interest on the effective date of this Act if the action would satisfy the requirements for enforceability under
this Act.
SECTION 108. A NEW SECTION OF ARTICLE 11 OF KRS CHAPTER 355 IS CREATED TO READ
AS FOLLOWS:
(1) Subject to subsections (2) and (3) of this section, this Act determines the priority of conflicting claims to
collateral.
(2) Subject to subsection (3) of this section, if the priority of claims to collateral were established before the
effective date of this Act, Article 9 of this chapter, as in effect before the effective date of this Act,
determines priority.
(3) On the adjustment date, to the extent the priorities determined by Article 9 of this chapter, as amended by
this Act, modify the priorities established before the effective date of this Act, the priorities of claims to
Article 12 property and electronic money established before the effective date of this Act cease to apply.
SECTION 109. A NEW SECTION OF ARTICLE 11 OF KRS CHAPTER 355 IS CREATED TO READ
AS FOLLOWS:
(1) Subject to subsections (2) and (3) of this section, Article 12 of this chapter determines the priority of
conflicting claims to Article 12 property when the priority rules of Article 9 of this chapter, as amended by
this Act, do not apply.
(2) Subject to subsection (3) of this section, when the priority rules of Article 9 of this chapter, as amended by
this Act, do not apply and the priorities of claims to Article 12 property were established before the effective
date of this Act, law other than Article 12 of this chapter determines priority. CHAPTER 10
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(3) When the priority rules of Article 9 of this chapter, as amended by this Act, do not apply, to the extent the
priorities determined by this Act modify the priorities established before the effective date of this Act, the
priorities of claims to Article 12 property established before the effective date of this Act cease to apply on
the adjustment date.
Section 110. KRS 304.7-360 is amended to read as follows:
(1) As used in this section:
(a) "Clearing corporation" shall be defined as provided in KRS 355.8-102[(3)] except that, with respect to
securities issued by institutions organized or existing under the laws of any foreign country or securities
used to meet the deposit requirements pursuant to the laws of a foreign country as a condition of doing
business therein, "clearing corporation" may include a corporation organized or existing under the laws
of any foreign country which is legally qualified under such laws to effect transactions in securities by
computerized book entry;
(b) "Custodian bank" means a national bank, state bank, or trust company which is a member of the Federal
Reserve System which acts as custodian of all or any part of an insurance company's securities;
(c) "Direct participant" means a bank, trust company, or other institution which maintains an account in its
name in a clearing corporation and through which an insurance company participates in a clearing
corporation;
(d) "Federal reserve book-entry system" means the computerized systems sponsored by the United States
Department of the Treasury and certain agencies and instrumentalities of the United States for holding
and transferring securities of the United States government and such agencies and instrumentalities,
respectively, in federal reserve banks through banks which are members of the Federal Reserve System
or which otherwise have access to such computerized systems;
(e) "Member bank" means a national bank, state bank, or trust company which is a member of the Federal
Reserve System through which an insurance company participates in the federal reserve book-entry
system;
(f) "Security" means a certificated security or an uncertificated security;
(g) "Certificated security" means a share, participation, or other interest in property or an enterprise of the
issuer or an obligation of the issuer which is represented by an instrument issued in bearer or registered
form, of a type commonly dealt in on securities exchanges or markets or commonly recognized in any
area in which it is issued or dealt in as a medium for investment, and either one (1) of a class or series
or by its terms divisible into a class or series of shares, participations, interests, or obligations; and
(h) "Uncertificated security" means a share, participation, or other interest in property or an enterprise of
the issuer or an obligation of the issuer which is not represented by an instrument and the transfer of
which is registered upon books maintained for that purpose by or on behalf of the issuer, of a type
commonly dealt in on securities exchanges or markets; and either one (1) of a class or series or by its
terms divisible into a class or series of shares, participations, interests, or obligations.
(2) Notwithstanding any other provision of law, an insurance company or its custodian bank may deposit or
arrange for the deposit of securities held in or purchased for the general account and the separate accounts of
such insurance company in a clearing corporation or the federal reserve book-entry system. When securities
are deposited with a clearing corporation, certificates representing securities of the same class of the same
issuer may be merged and held in bulk in the name of the nominee of such clearing corporation with any other
securities deposited with such clearing corporation by any person, regardless of the ownership of such
securities, and certificates representing securities of small denominations may be merged into one (1) or more
certificates of larger denominations. The records of any member bank through which an insurance company
holds securities in the federal reserve book-entry system, and the records of any direct participant through
which an insurance company holds securities in a clearing corporation, shall at all times show that such
securities are held for such insurance company or its custodian bank and for which accounts thereof.
Ownership of, and other interests in, such securities may be transferred by bookkeeping entry on the books of
such clearing corporation or in the federal reserve book-entry system without, in either case, physical delivery
of certificates representing such securities.
(3) Notwithstanding any other provision of law, an insurance company may deposit securities held in or purchased
for its general account and its separate accounts in a custodial account with a custodian bank approved by, and ACTS OF THE GENERAL ASSEMBLY 80
under a custodial agreement approved by, the commissioner. When securities are deposited in such custodial
account, certificates representing securities of the same class of the same issuer may be merged and held in
bulk in the name of the custodian bank or its nominee with any other securities held in the custody of the
custodian bank or its nominee by any person, regardless of the ownership of such securities, and certificates
representing securities of small denominations may be merged into one (1) or more certificates of larger
denominations. The records of the custodian bank which holds securities for an insurance company in a
custodial account shall at all times show that such securities are held for such insurance company and for
which accounts thereof. Ownership of, and other interests in, such securities may be transferred by
bookkeeping entry on the books of such custodian bank without physical delivery of certificates representing
such securities.
(4) The same bank or trust company may act as direct participant, member bank, and custodian bank for an
insurance company.
(5) The commissioner of insurance shall promulgate administrative[rules and] regulations governing the deposit
by insurance companies of securities with clearing corporations and in the federal reserve book-entry system
and with custodian banks.
Section 111. KRS 367.976 is amended to read as follows:
As used in KRS 367.976 to 367.985, unless the context otherwise requires:
(1) "Advertisement" means a commercial message in any medium that aids, promotes, or assists directly or
indirectly a rental-purchase agreement, excluding in-store merchandising aids;[.]
(2) "Cash price" means the price at which the lessor would have sold the property to the consumer for cash on the
date of the rental-purchase agreement;[.]
(3) "Consumer" means a natural person who rents personal property under a rental-purchase agreement;[.]
(4) "Consummation" means the time a consumer becomes contractually obligated on a rental-purchase
agreement;[.]
(5) "Division" means the Division of Consumer Protection in the Office of the Attorney General;[.]
(6) "Lessor" means a person who, in the ordinary course of business, regularly leases, offers to lease, or arranges
for the leasing of property under a rental-purchase agreement;[.]
(7) (a) "Rental-purchase agreement" means an agreement for the use of personal property by a natural person
primarily for personal, family, or household purposes, for an initial period of four (4) months or less,
whether or not there is any obligation beyond the initial period, that is automatically renewable with
each payment and that permits the consumer to become the owner of the property.
(b) The term rental-purchase agreement shall not be construed to be, nor be governed by, any of the
following:
1.[(a)] A lease or agreement which constitutes a credit sale as defined in 12 C.F.R. part 226.2(a)(16) and
Section 1602(h)[(g)] of the Truth in Lending Act, 15 U.S.C. sec.[secs.] 1601 et seq.;
2.[(b)] A lease which constitutes a consumer lease as defined in 12 C.F.R. part 213.2(e)(1)[(a)(6)];
3.[(c)] Any lease for agricultural, business, or commercial purposes;
4.[(d)] Any lease made to an organization;
5.[(e)] A lease or agreement which constitutes a retail installment transaction or retail installment
contract as defined in KRS 371.210;
6.[(f)] A security interest as defined in KRS 355.1-201[(37)]; or
7.[(g)] A home solicitation sale as that term is defined in KRS 367.410.
Section 112. KRS 369.116 is amended to read as follows:
(1) In this section, "transferable record" means an electronic record that:
(a) Would be a note under Article 3 of KRS Chapter 355 or a document under Article 7 of KRS Chapter
355 if the electronic record were in writing; and
(b) The issuer of the electronic record expressly has agreed is a transferable record. CHAPTER 10
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(2) 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.
(3) A system satisfies subsection (2) 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:
(a) A single authoritative copy of the transferable record exists which is unique, identifiable, and, except as
otherwise provided in paragraphs (d), (e), and (f) of this subsection, unalterable;
(b) The authoritative copy identifies the person asserting control as:
1. The person to which the transferable record was issued; or
2. If the authoritative copy indicates that the transferable record has been transferred, the person to
which the transferable record was most recently transferred;
(c) The authoritative copy is communicated to and maintained by the person asserting control or its
designated custodian;
(d) Copies of revisions that add or change an identified assignee of the authoritative copy can be made only
with the consent of the person asserting control;
(e) 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
(f) Any revision of the authoritative copy is readily identifiable as authorized or unauthorized.
(4) (a) Except as otherwise agreed, a person having control of a transferable record is the holder, as defined in
KRS 355.1-201[(20)], of the transferable record and has the same rights and defenses as a holder of an
equivalent record or writing under KRS Chapter 355, including, if the applicable statutory requirements
under KRS 355.3-302(1), 355.7-501, or 355.9-330 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.
(b) Delivery, possession, and indorsement are not required to obtain or exercise any of the rights under this
subsection.
(5) Except as otherwise agreed, an obligor under a transferable record has the same rights and defenses as an
equivalent obligor under equivalent records or writing under KRS Chapter 355.
(6) 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.
Section 113. Nothing in this Act shall be construed to support, endorse, create, or implement a national
digital currency.
Section 114. This Act takes effect on January 1, 2025.
Signed by Governor March 26, 2024.